VOL  I— DESCRIPTIVE  TEXT 


A  STANDARD  METHOD  OF 
ACCOUNTING 
FOR  RETAIL  STORES 

FINANCIAL  STATEMENTS 
OPERATING  STATEMENTS 

CLASSIFICATION  AND 
DISTRIBUTION  OF  EXPENSE 

CLASSIFICATION 
OF  MERCHANDISE 


200  FIFTH  AVE.,  NEW  YORK  CITY 


i? 


2731 


CONTROLLERS’  CONGRESS 


OF  THE 

National  Retail  Dry  Goods  Association 


OFFICIAL  PUBLICATION 


Volume  I— DESCRIPTIVE  TEXT 


A  STANDARD  METHOD 
OF  ACCOUNTING 
FOR  RETAIL  STORES 

FINANCIAL  STATEMENTS 

OPERATING  STATEMENTS 

CLASSIFICATION  AND  DISTRIBUTION 
OF  EXPENSE 

CLASSIFICATION  OF  MERCHANDISE 


AMPLIFYING  AND  REVISING  “THE  CLASSIFICATION  AND  DISTRIBUTION 
OF  EXPENSE  IN  RETAIL  STORES”  ISSUED  BY  THE  NATIONAL 
RETAIL  DRY  GOODS  ASSOCIATION  IN  1917. 


COPYRIGHTED  1922,  BY  THE 

CONTROLLERS’  CONGRESS 
OF  THE 

NATIONAL  RETAIL  DRY  GOODS  ASSOCIATION 


200  5th  AVE.,  NEW  YORK  CITY 


CONTENTS 


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Introduction . 

Publication . 

Part  No.  I 

Descriptive  Text  on  Balance  Sheet . 

Part  No.  II 

Descriptive  Text  on  Operating  Statement 

Definitions . 

Customs  and  Usages . 


Page 

5 

6 


7  to  11 


12  to  17 
18  to  20 
21 


Part  No.  Ill 

Descriptive  Text  on  Classification  and  Distribution  of  Expenses . 22  to  31 

Part  No.  IV 

Descriptive  Text  on  Classification  of  Merchandise .  32 


Part  No.  V 

Bookkeeping  Procedure 

Balance  Sheet  Accounts 
Operating  Accounts .... 

Expense  Accounts . 

Index . 


.  33  to  46 
.47  to  49 
.  50 

51  and  52 


INTRODUCTION 


Diversity  in  accounting  methods  and  confusion  in  terminology  among  retail  stores  have  brought  re¬ 
tail  merchants  to  the  realization  that  the  adoption  of  standard  methods  is  essential,  if  the  scientific  study 
of  the  function  of  retail  distribution  is  to  keep  pace  with  the  development  of  scientific  methods  in  other 
branches  of  commerce. 

The  tendency  among  retail  stores  has  been  to  devise  new  and  better  systems  only  as  the  growth  and 
progress  of  each  business  demanded  improved  routine.  The  need  for  standard  processes  has  become  more 
apparent  as  merchants  compare  their  results  with  one  another.  During  the  past  few  years  when  trade 
associations,  or  government  agencies,  have  sought  comparative  statistics  from  retailers,  it  has  been  found 
extremely  difficult  to  tabulate,  accurately,  the  information  obtained,  however  freely  it  was  furnished, 
because  of  the  lack  of  uniformity  in  the  terms  used,  and  the  methods  employed. 

The  modern  tendency  of  the  government  is  to  require  increasingly  detailed  reports  covering  the  oper¬ 
ation  of  all  business  enterprises.  Out  of  the  need  of  having  such  reports  on  a  comparable  basis  has  arisen 
government  prescription  of  accounting  methods  in  other  branches  of  industry.  It  is  obvious  that  lines  of 
business  which  have  not  voluntarily  adopted  a  uniform  system  of  accounts,  acceptable  to  the  government, 
may  have  such  system  required  by  those  less  familiar  with  retail  problems.  This  plan  of  standardization 
has  been  prepared  in  anticipation  of  a  need  which  may  arise  eventually. 

Aside  from  the  sheer  practical  necessity  for  standardization  there  are  other  equally  important  reasons 
for  introducing  uniform  accounting  practice  among  the  craft.  Trained  accountants,  entering  the  retail 
field  for  the  first  time,  are  bewildered  by  the  diversity  of  practice.  An  accepted  standard  will  not  only 
assist  the  expert  in  more  quickly  adapting  himself  to  retail  problems,  but  will  be  an  important  factor  in 
training  the  intelligent  beginners  within  the  retail  field  itself. 

Every  enterprising  merchant  looks  forward  to  the  time  when  his  business  will  have  become  a  larger 
institution  with  ever  widening  sphere  of  influence.  With  the  standard  classification  before  him  he  may 
adjust  his  accounting  system  to  the  greater  detail  necessary  in  the  larger  operation  without  seriously  dis¬ 
turbing  the  comparison  of  previous  years. 

It  is  of  even  greater  importance  to  the  retailer  to  have  a  more  thorough  knowledge  of  his  business,  and 
a  record  of  facts  which  he  can  compare  with  his  fellow-merchant.  From  these  comparisons  will  be  developed 
new  standards  or  measures  of  performance  by  which  merchants  may  determine  accurately  the  degree  of 
their  own  success. 

The  report  is  presented  in  two  volumes — Volume  I,  the  Descriptive  Text,  and  Volume  II,  the  Charts, 
which  will  enable  the  reader  to  have  before  him,  at  the  same  time,  both  text  and  charts. 

The  explanatory  text  and  bookkeeping  procedure  provided  in  this  volume  will  assist  in  the  interpre¬ 
tation  and  application  of  the  Classification  described  in  the  Charts  contained  in  Volume  II. 


5 


PUBLICATION 


This  publication  is  printed  by  authority  of  the  Board  of  Directors  of  the  Controllers’  Congress  and 
the  National  Retail  Dry  Goods  Association. 

The  issuing  of  this  publication  was  made  possible  by  the  efforts  of  the  following  individuals  and 
courtesy  of  their  respective  companies. 


JAY  IGLAUER,  Chairman 

The  Halle  Brothers  Co.,  Cleveland  ,Ohio 

C.  B.  CLARK 

The  J.  L.  Hudson  Co.,  Detroit,  Mich. 
ERNEST  KATZ 

R.  H.  Macy  &  Co.,  Inc.,  New  York  City 
V.  C.  KENDALL 

The  L.  S.  Ayres  Co.,  Indianapolis,  Ind. 
JOHN  JACKSON 

Strawbridge  &  Clothier,  Philadelphia,  Pa. 

MAURICE  WRIGLEY 

Jordan  Marsh  Co.,  Boston,  Mass. 


Accounting  Committee 

OF  THE 

National  Retail  Dry  Goods  Association 


C.  E.  APPLEGATE,  Chairman 

The  Lasalle  &  Koch  Co.,  Toledo,  Ohio 

F.  H.  BEACOM 

The  Strouss-Hirshberg  Co.,  Youngstown,  Ohio 
T.  L.  BLANKE 

Wurzburg  Dry  Goods  Co.,  Grand  Rapids, 
Mich. 

G.  K.  CREIGHTON 

E.  T.  Slattery  Co.,  Boston,  Mass. 

W.  J.  HUNTER 

The  Mabley  &  Carew  Co.,  Cincinnati,  Ohio 
A.  J.  MARTELL 

Loveman,  Joseph  &  Loeb,  Birmingham,  Ala. 

S.  L.  SILVERSTEIN 

The  Rosenbaum  Co.,  Pittsburgh,  Pa. 

Committee  on  Standardization 
of  THE 

Controllers’  Congress 


0 


PART  I 


BALANCE  SHEET 


The  Balance  Sheet  consists  of  account  balances  remaining  open  on  the  ledger  after  the  balances  of 
income  and  expense  accounts  have  been  transferred  to  Profit  and  Loss  Account,  and  the  resultant  balance 
of  that  account  to  Surplus  or  Investment  Account,  or  after  the  effect  of  such  a  closing  of  the  books  has 
been  produced  by  consolidating  those  accounts  in  memoranda  only.  It  thus  represents  the  condition  of 
affairs  at  a  fixed  moment  of  time,  denoting  position  as  contrasted  with  the  Operating  Statement  (Income 
Sheet),  which  denotes  progress. 

The  balances  are  listed  under  two  principal  captions,  “Assets,”  appearing  on  the  left-hand  side  of  the 
page,  “Liabilities,”  on  the  right.  Broadly  speaking,  it  may  be  said  that  the  assets  represent  the  property 
of  the  business,  the  liabilities,  the  extent  of  ownership  thereof  or  interest  therein.  The  assets  are  a  classified 
fist  of  things  of  value,  exhibited  with  due  regard  to  the  liquidity  of  the  various  classes.  The  liabilities  are 
a  classified  list  of  ownerships  or  interests  with  due  regard  to  the  priority  of  their  respective  claims  to  the 
assets. 


BALANCE  SHEET  ACCOUNTS 


ASSETS 


CURRENT 

CASH 

On  Hand 

For  deposit 
Cashiers’  funds 

On  Deposit 

Bank  accounts  (an  account  with  each  bank,  or  one  account  with  a  subsidiary  bank  register.) 


NOTES  RECEIVABLE 
Customers’  notes 
Accrued  interest 

Reserve  for  possible  losses  (contra) 

ACCOUNTS  RECEIVABLE 
Charge 
C.  0.  D. 

LayawTay  or  Will-calls 
Installment  and  Mortgage 
Reserve  for  possible  losses  (contra) 

MERCHANDISE 

Inventory  of  merchandise  on  hand 
Merchandise  paid  for  in  advance 


8 


BALANCE  SHEET 


U.  S.  SECURITIES 

Bonds  (an  account  with  each  issue) 

Certificate  of  indebtedness 

Accrued  interest  N 

War  savings  stamps 

Reserve  for  possible  losses  (contra) 

OTHER  ASSETS 

Securities  owned  (An  account  with  each  classification  or  issue) 

Accrued  interest 

Stocks  owned  (An  account  with  each  classification  or  issue) 

Notes  receivable — Current  and  non-current 
Accrued  interest 
Insurance  deposits 

Cash  surrender  value  of  life  insurance  policies 
Common  carrier  claims 

Land  and  buildings — Not  used  in  the  operation  of  the  business 
Personal  accounts  (A  separate  account  with  each  individual) 

DEFERRED  CHARGES 

Unexpired  insurance  premiums 
Prepaid  interest  on  notes  payable 
Supply  inventory 

Prepaid  expenses  (An  account  with  each  classification) 

Organization  expenses 

PERMANENT 

Land 

Leasehold  and  improvements  to  leased  buildings 
Reserve  for  amortization  of  lease  (contra) 

Buildings 

Reserve  for  depreciation  (contra) 

Machinery  and  equipment 
Reserved  for  depreciation  (contra) 

Store  furniture  and  fixtures 
Reserve  for  depreciation  (contra) 

Office  furniture  and  equipment 
Reserve  for  depreciation  (contra) 

Delivery  equipment 

Reserve  for  depreciation  (contra)  * 


GOOD  WILL,  PATENTS  AND  TRADEMARKS 


DESCRIPTIVE  TEXT 


9 


LIABILITIES 


CURRENT 

NOTES  PAYABLE 

For  money  borrowed  from  banks 
For  money  borrowed  through  brokers 
For  money  borrowed  from  officers 
For  money  borrowed  from  others 
For  purchases 
Trade  acceptances 

ACCOUNTS  PAYABLE 

For  merchandise  and  expense  purchases 
For  federal  sales  taxes 
For  unredeemed  cash  refunds 
For  unredeemed  gift  certificates 

Leased  section  accounts  (An  account  with  each  section) 
Personal  accounts  (An  account  with  each  individual) 

ACCRUED  ACCOUNTS 

Taxes,  Real  and  Personal — City,  County  and  State 
Pay  roll 

Interest  on  notes  payable 
Rent 

Expenses  (An  account  with  each  classification) 

FUNDED  INDEBTEDNESS 

Mortgages 

Bonds  (an  account  with  each  classification  or  issue) 

RESERVES 

For  federal  income  taxes 
For  contingencies 

PROPRIETARY  INTERESTS 
(If  a  Corporation) 

CAPITAL  STOCK 

Preferred — Authorized 
Less :  Unissued 
Common — Authorized 
Less:  Unissued 

PROFIT  AND  LOSS— SURPLUS 

Surplus 

Undivided  profits 


(If  a  partnership  or  sole  proprietorship) 

INVESTMENT  ACCOUNTS 

An  account  with  each  partner 

PROFIT  AND  LOSS— CURRENT  ACCOUNT 


10 


BALANCE  SHEET 


ASSETS 

The  following  divisions  are  provided  to  set  forth  the  nature  and  comparative  degree  of  liquidity  of 

the  various  classes  of  Assets. 

CURRENT  ASSETS 

Current  Assets  consist  of  Cash  and  those  items  which  may  be  readily  converted  into  cash  and 
are  continually  changing  through  the  carrying  on  of  the  business.  Usually  these  consist  of  Cash, 
Notes  and  Accounts  Receivable,  Inventories  and  Government  Securities. 

CASH 

This  account  represents  the  balance  of  cash  on  hand  and  in  banks  at  the  date  of  the  Balance  Sheet. 

NOTES  RECEIVABLE 

This  account  represents  the  face  value  of  all  evidences  of  indebtedness  (except  as  below  provided) 
which  are  the  property  of  the  business  and  which  are  considered  collectible.  This  account  does  not 
include  investments,  for  which  other  provision  has  been  made. 

ACCOUNTS  RECEIVABLE 

This  account  includes  all  amounts  owing  to  the  business  upon  accounts  with  solvent  trade  debtors, 
except  claims  evidenced  by  notes,  etc.,  provided  for  in  the  preceding  account. 

MERCHANDISE  . 

This  account  includes  the  cost  or  market  value,  whichever  is  the  lower,  of  merchandise  on  hand, 
purchased  for  resale  and  merchandise  paid  for  in  advance,  in  the  regular  course  of  business.  For  full 
discussion,  see  text  accompanying  item  No.  13,  “Inventory  at  End  of  Period,”  on  the  Operating 
Statement. 

U.  S.  SECURITIES 

This  account  represents  the  cost  or  market  value,  whichever  is  the  lower,  of  United  States  Govern¬ 
ment  Securities  on  hand  at  date  of  Balance  Sheet. 

OTHER  ASSETS 

All  other  Assets  have  been  provided  for  under  this  group,  such  as  securities  of  other  corporations 
and  sundry  notes  and  accounts  receivable,  other  than  those  arising  in  the  ordinary  transactions  of 
the  business. 

DEFERRED  CHARGES 

This  group  of  accounts  consists  of  expenses  paid  in  advance,  chargeable  to  subsequent  periods, 
and  to  this  extent  represent  an  Asset.  They  include  the  prepayment  of  Insurance,  Taxes,  Rent,  Sup¬ 
plies  and  Organization  Expenses. 

PERMANENT  ASSETS 

This  item  represents  the  cost  of  all  interests  in  land,  buildings,  leaseholds,  machinery,  fixtures 
and  equipment  on  hand  at  the  date  of  Balance  Sheet,  with  proper  provision  for  depreciation,  obsole¬ 
scence  and  amortization  thereof. 

GOOD  WILL,  PATENTS  AND  TRADEMARKS 

This  account  represents  the  cost  or  amortized  valuation  of  any  assets  acquired,  which  can  be 
classified  under  this  caption. 


DESCRIPTIVE  TEXT 


11 


LIABILITIES 

The  following  divisions  are  provided  to  set  forth  the  nature  of  the  various  classes  of  Liabilities 
and  the  priority  of  their  respective  claims  against  the  Assets. 

CURRENT  LIABILITIES 

Current  Liabilities  consist  of  notes  and  accounts  payable,  and  of  items  accrued  in  anticipation 
of  payment. 

NOTES  PAYABLE 

This  item  represents  the  amount  of  indebtedness  evidenced  by  notes  at  the  date  of  the 
Balance  Sheet,  except  funded  debts. 

ACCOUNTS  PAYABLE 

This  item  represents  all  Liabilities  incurred  by  the  business  upon  open  accounts. 

ACCRUED  LIABILITIES 

This  item  represents  the  amount  of  liabilities  accrued,  and  consists  of  such  items  as  taxes,  pay¬ 
roll,  interest,  rent,  advertising,  traveling  expenses,  water  and  other  services,  which  have  been  ren¬ 
dered  the  business  previous  to  the  date  of  the  Balance  Sheet,  but  which  on  that  date  are  not  due  and 
are  unpaid,  and  for  which  no  invoice  has  been  rendered. 

FUNDED  INDEBTEDNESS 

This  item  represents  the  long  term  indebtedness  of  the  business,  and  has  been  divided  into  mort¬ 
gages  and  bonds. 

RESERVES 

This  account  represents  the  amount  of  surplus  set  aside  for  federal  income  taxes,  contingencies 
and  the  liquidation  of  losses  not  otherwise  provided  for,  or  other  items  the  actual  amount  of  which 
are  not  determinable  at  the  date  of  the  Balance  Sheet. 

CAPITAL  STOCK 

This  account  represents  the  amount  of  stock  authorized,  having  a  par  value,  less  the  par  value 
of  redeemed  or  unissued  stock.  In  the  case  of  stock  issued  of  no  par  value,  it  represents  the  cash,  or 
its  equivalent,  received  in  payment  of  stock  issued. 

The  purchases  of  its  own  stock  by  a  corporation  should  be  carried  as  “Treasury  Stock,”  under 
other  assets.  The  laws  of  the  various  states  are  not  uniform  in  regard  to  the  retirement  of  stocks, 
and  Treasury  Stock  should  be  treated  accordingly. 

PROFIT  AND  LOSS— SURPLUS 

This  account  represents  the  amount  of  paid-in  surplus  and  the  undistributed  earnings  of  the 
business  at  the  date  of  the  Balance  Sheet. 

CAPITAL  OR  INVESTMENT  ACCOUNTS 

These  accounts  represent  the  net  investment  at  the  date  of  the  Balance  Sheet  of  the  partners  or 
sole  proprietorship  of  a  business  not  incorporated. 

PROFIT  AND  LOSS— CURRENT 

This  account  represents  the  net  profit  or  loss  of  the  business  for  the  current  period. 


PART  II 


OPERATING  STATEMENT 


INCOME  (l)1 

Caption  only. 


SALES  (2)1 

Caption  only. 

GROSS  SALES  (3), 

The  total  of  all  sales  as  defined  under  “Definitions,”  less  any  discounts  granted  to  customers  or  em¬ 
ployees,  but  before  any  returns  or  allowances  are  taken  into  account,  constitute  the  Gross  Sales  of  the 
business. 

Gross  Sales  is  the  first  item  on  the  Operating  Statement  because  it  is  the  natural  point  of  departure 
for  a  logical  analysis  of  profit  and  loss,  the  negotiation  of  sales  at  a  favorable  rate  being  the  principal  busi¬ 
ness  of,  and  source  of  profit  to,  the  retailer. 

This  account  should  be  credited  at  selling  price  with  all  sales  of  merchandise  purchased  for  resale  at 
a  profit,  of  merchandise  manufactured  in  whole  or  in  part  by  the  retailer  for  sale  at  a  profit,  with  alteration 
charges  collected  from  customers  and  receipts  of  restaurants  and  personal  service  departments,  and  only 
those. 

Specifically,  it  should  not  include  sales  which  are  in  effect  reclamations  of  expense  such  as  sales  of  waste 
paper,  sales  which  are  in  effect  reductions  of  assets  other  than  merchandise,  such  as  sales  of  discarded  fix¬ 
tures  or  other  equipment,  or  interdepartmental  transfers  of  merchandise  which  are  reductions  of  inventory 
in  the  department  issuing  and  either  increases  in  inventory  in  the  department  receiving  or  additions  to  an 
asset  or  expense  account.  Neither  should  it  include  excise  taxes  collected  from  customers,  as  these  should 
be  reserved  until  their  due  date  in  specific  liability  accounts,  one  for  each  class  of  tax. 

Amounts  charged  customers  for  transportation  of  merchandise  to  distant  points  should  not  be  included 
in  Gross  Sales,  but  should  be  treated  as  a  reduction  of  expense. 

This  account  may,  and  should  be,  subdivided  into  its  constituent  elements,  Gross  Cash  Sales,  Gross 
Charge  Sales  and  Gross  C.  O.  D.  and  Layaway  or  Will  Call  Sales.  These  in  turn  should  be  shown  by  de¬ 
partments  in  a  subsidiary  record  if  the  business  is  departmentized. 

GROSS  SALES— LEASED  SECTIONS  (5) 

Gross  Sales  from  leased  sections  should  be  shown  separately  on  this  fine. 

There  is  good  reason  for  this  position.  Leased  Section  operations  are  similar  in  kind  to  the  operations 
which  are  the  stores  principal  line  of  activity.  The  profits  which  accrue  from  them  are  mainly  profits  on 
the  sale  of  merchandise  at  retail,  although  that  merchandise  is  not  the  property  of  the  store.  This  being 
the  case,  it  is  preferable  to  exhibit  such  profits  in  a  position  where  they  can  be  readily  combined  with  the 
merchandising  profits  on  own  goods  to  give  a  total  which  is-representative  o/  the  profits  on  all  sales  at  re¬ 
tail  within  the  same  store  rather  than  to  include  them  with  Other  Incofne. 


12 


DESCRIPTIVE  TEXT 


13 


RETURNS  AND  ALLOWANCES  (4) 

This  account  furnishes  the  means  of  exhibiting  separately  the  effect  upon  the  business  of  goods  re¬ 
turned  for  credit  by  customers  and  allowances  made  to  them  during  the  period. 

No  other  reductions  from  Gross  Sales  should  be  included  in  the  classification.  Specifically,  customers’ 
and  employees’  discounts  should  not  be  charged  here,  as  they  have  already  been  deducted  from  the  sale, 
and  such  sales  are  therefore  net  when  credited  to  Gross  Sales. 

In  considering  returns  and  allowances,  it  must  be  borne  in  mind  that  the  expenses  of  the  business  are 
in  large  part  determined  by  the  volume  of  Gross  Sales.  Consequently,  returns  and  allowances  represent 
a  loss  greater  than  that  involved  in  the  mere  cancellation  or  reduction  of  selling  price  previously  credited 
to  Gross  Sales.  Thejr  reflect  in  addition  an  element  of  expense  which  produces  no  immediate  return  and 
which  must  necessarily  be  included  as  a  cost  of  obtaining  the  sales  which  “stay  sold.” 

RETURNS  AND  ALLOWANCES— LEASED  SECTIONS  (6) 

Returns  and  Allowances  of  leased  sections  should  be  shown  separately  on  this  line. 

NET  SALES  (7) 

This  is  the  principal  income  item  out  of  which  must  be  met  all  items  of  cost  or  expense.  This  being 
the  case,  it  is  taken  ‘as  100%,  or  the  figure  upon  which  all  subsequent  percentages  are  calculated. 

COST  OF  SALES  (8) 

INVENTORY  AT  BEGINNING  OF  PERIOD  (9) 

This  item  on  the  Operating  Statement  of  any  fiscal  period  corresponds  exactly  with  item  13  on  the 
Operating  Statement  of  the  preceding  period.  A  full  discussion  will  be  found  under  item  13. 

PURCHASES— NET  (10) 

This  account  is  debited  in  the  first  instance  with  the  invoice  cost  of  all  merchandise  purchased  for 
resale,  less  trade  discounts  which  are  an  integral  part  of  the  purchase  price,  but  before  deducting  cash  dis¬ 
counts  which  are  conditional  upon  the  date  of  settlement.* 

Purchases  should  be  charged  both  with  the  cost  of  materials  bought  for  manufacturing  departments 
and  with  the  manufacturing  payroll  and  other  expense. 

Transfers  to  a  selling  department  should  be  made  at  total  cost,  the  selling  department  taking  credit 
for  sales,  when  made,  at  full  retail  price.  The  selling  departments  thus  absorb  the  operations  of  the  manu¬ 
facturing  departments  completely. 

Import  duties  and  other  charges  on  foreign  merchandise,  such  as  commissionnaires’  fees,  insurance, 
etc.,  are  a  part  of  the  cost  of  such  merchandise  and  should  be  charged  to  Purchases. 

This  account  is  credited  with  all  merchandise  returned  to  manufacturers  and  with  all  allowances  re¬ 
ceived  from  them  on  account  of  unsatisfactory  merchandise. 

FREIGHT,  EXPRESS  AND  CARTAGE  INWARD  (11) 

This  account  is  charged  with  all  inward  transportation  costs  since  they  are  demonstrably  an  additional 
cost  of  merchandise  rather  than  an  expense. 

From  the  merchandise  standpoint,  the  delivered  cost  of  his  goods  is  what  a  merchant  needs  most  to 
know  in  determining  the  retail  price  at  which  he  will  mark  them.  The  cost  of  identical  goods  to  merchants 
located  at  different  distances  from  the  central  market  is  not  the  same  and  mark-up  comparisons  between 
them  will  be  misleading  unless  the  variable  factor  of  transportation  is  included  in  their  merchandise  costs. 

•In  some  businesses,  there  is  set  up  a  standard  rate  of  cash  discount  which  the  departments  are  required  to  obtain  on  their  purchases.  In  case  they  do 
not  obtain  it,  they  are  charged  with  the  difference  between  the  required  discount  and  the  discount  allowed,  or  available  discount  so-called.  It  is  not  to  be 
understood  that  the  Committee  recommends  this  practice,  but,  where  it  is  followed,  it  is  recommended  that  this  difference,  commonly  called  "Loading,”  be 
charged  to  purchases,  since  credit  for  all  cash  discounts,  whether  they  be  actually  obtained  from  the  manufacturer  or  charged  to  departments,  is  taken  only 
after  Gross  Cost  of  Merchandise  Sold,  item  14,  is  arrived  at,  appearing  in  Discount  Earned  on  Merchandise  Purchases,  item  15. 


14 


OPERATING  STATEMENT 


From  the  expense  standpoint,  transportation  costs  are  not  responsive  to  management  policies  as  are 
the  controllable  expenses,  such  as  wages  and  advertising.  Neither  are  they  relatively  fixed  in  amount  as 
are  other  expenses,  such  as  rent,  etc.  In  fact,  they  are  quite  unlike  the  expenses  of  the  business  in  that  they 
are  entirely  dependent  and  consequent  upon  the  movement  of  merchandise  inward,  fluctuating  in  exact 
proportion  to  the  volume  of  goods  received.  Therefore,  aside  from  the  incorrectness  of  including  them  in 
expenses,  it  would  be  inexpedient  to  do  so,  if  only  for  the  reason  that  expenses  would  thereby  be  increased 
by  an  element  which  the  expense  management  could  not  control  and  for  which  it  could  not  be  held  respon¬ 
sible. 

Inventory  treatment  of  this  item  will  be  dealt  with  under  item  13,  Inventory  at  End' of  Period. 

TOTAL  INVENTORY  AND  PURCHASES  (12) 

This  item  is  Inventory  at  Beginning  of  Period  plus  Purchases — Net,  and  Freight,  Express  and  Cartage 
Inward. 

INVENTORY  AT  END  OF  PERIOD  (13) 

Inventory  at  End  of  Period  should  be  the  inventory  of  merchandise  on  hand,  taken  at  cost  or  market, 
whichever  is  lower.  This  conforms  to  the  best  accounting  practice  and  is  in  accord  with  the  requirements 
of  the  Treasury  Department  which  permits  either  of  two  methods;  i.  e.,  (a)  cost,  or,  (b)  cost  or  market, 
whichever  is  lower,  provided  the  same  method  is  followed  in  subsequent  years.  In  the  retail  business, 
certainly,  the  latter  method  is  the  more  conservative,  in  fact,  it  is  the  only  safe  one  to  follow  if  an  overstate¬ 
ment  of  profits  is  to  be  avoided. 

Now,  under  the  Retail  Inventory  Method,  depreciation  is  automatically  taken  into  account  through 
markdowns,  so  that  the  inventory  at  end  of  the  period  is  really  depreciated  inventory. 

This  is  not  the  case  under  the  cost  inventory  method,  where,  by  use  of  a  code  system,  the  inventory 
is  figured  at  billed  cost.  Under  that  method,  the  utmost  care  must  be  exercised  to  see  that  the  figure  used 

is  either  cost  or  market,  whichever  is  lower,  if  the  merchant  is  following  that  method.  The  instructions 

are  specific  and  only  one  of  these  two  figures  will  be  permitted  by  the  government.  The  depreciation  which 
the  merchant  who  operates  under  the  retail  inventory  method  obtains  automatically  is  denied  to  the  mer¬ 
chant  who  operates  under  the  cost  method,  inasmuch  as  the  burden  of  proof  is  on  him  to  substantiate 
that  any  figure  other  than  cost  used  in  his  inventory  is  an  actual  market  figure  at  inventory  time — that 
is,  it  is  offered  for  sale  in  the  ordinary  wholesale  market  at  the  rate  at  which  the  inventory  is  taken.  Only 
one  exception  to  this  rule  is  made  in  favor  of  the  merchant  who  operates  on  the  cost  inventory  method. 
This  exception  is,  that,  where  the  retail  price  at  inventory  time  is  less  than  the  cost  price  originally  paid  for 
an  article,  the  retail  price  may  be  used  as  cost  in  inventory. 

Under  the  Cost  Inventory  Method,  therefore,  inventory  at  end  of  period  should  consist  of: 

(a)  Merchandise  on  hand  at  (a)  cost,  or  (b)  cost  or  market,  whichever  is  lower,  according  to  the 

method  used  by  the  merchant.  Materials  on  hand  in  manufacturing  departments  should 

be  included. 

(b)  Average  rate  of  Freight,  Express  and  Cartage  Inward  for  the  period,  wherever  the  figure 
is  obtainable,  applied  to  (a). 

(c)  Manufacturing  payroll  and  materials  involved  in  work  in  process,  unfinished  jobs  which 
have  not  been  transferred  from  a  manufacturing  to  a  selling  department. 

(Note)  The  amount  obtained  by  applying  to  (a)  above  the  average  rate  of  Discounts  Earned  on 
Merchandise  Purchases,  item  15,  should  be  deducted  from  item  15.* 

Under  the  Retail  Inventory  Method,  recommended  by  the  Association  and  approved  by  the  Treasury 
Department,  inventory  at  end  of  period  should  consist  of: 

(a)  The  cost  equivalent  of  the  retail  value  of  the  merchandise  on  hand.  This  cost  equivalent 
is  obtained  by  applying  to  the  retail  value  of  the  inventory  the  complementary  cost  rate  of 
the  average  percentage  of  purchase  mark-up;  i.  e.,  the  percentage  rate  reached  by  subtract¬ 
ing  the  latter  from  100%  (see  complete  description  of  the  Retail  Inventory  Method  under 
Definitions). 

_  *Where  the  practice  of  charging  to  purchases  the  difference  between  required  and  available  discounts  is  followed,  the  average  rate  of  such  diSerence 
applied  to  (a)  is  a  proper  addition  to  the  inventory  itself. 


DESCRIPTIVE  TEXT 


15 


(b)  Materials  on  hand  in  manufacturing  departments. 

(c)  Manufacturing  payroll  and  materials**  -involved  in  work  in  process,  unfinished  jobs  which 
have  not  been  transferred  from  a  manufacturing  to  a  selling  department. 

(Note)  The  amount  obtained  by  applying  to  (a)  above  the  average  rate  of  Discounts  Earned  on 
Merchandise  Purchases,  item  15,  should  be  deducted  from  item  15. 

GROSS  COST  OF  MERCHANDISE  SOLD  (14) 

This  item  is  Total  Inventory  and  Purchases  less  Inventory  at  End  of  Period. 

DISCOUNT  EARNED  ON  MERCHANDISE  PURCHASES  (15) 

Some  businesses  treat  their  cash  discounts  on  merchandise  purchases  as  a  reduction  of  the  cost  of  those 
purchases,  while  others  consider  them  as  “Other  Income”  and  credit  them  as  such  at  the  bottom  of  the 
Operating  Statement  after  Net  Operating  Profit  (or  Loss)  is  determined. 

The  opposing  views  are  presented  in  the  discussion  on  Discounts  under  Customs  and  Usages  and, 
therefore,  will  not  be  dealt  with  here.  Suffice  it  to  say  that  there  is  a  decided  division  of  opinion  which 
necessitates  the  accounting  treatment  of  this  item  as  shown  on  the  Operating  Statement.  The  location 
of  item  15  permits  of  either  application.  The  merchant  who  has  operated  on  an  “Other  Income”  basis  for 
discounts  may  take  item  14,  Gross  Cost  of  Merchandise  Sold,  add  thereto  item  17,  Alteration  Costs,  to 
obtain  a  working  “Cost  of  Sales”  for  the  purpose  of  controlling  his  department  managers  as  formerly,  and 
for  that  purpose  alone.  It  must  always  be  clearly  borne  in  mind,  however,  that  the  “Cost  of  Sales”  so  ar¬ 
rived  at  is  for  internal  management  purposes  only  and  is  not  Cost  of  Sales  as  defined  in  this  report  under 
item  26.  Regardless  of  discount  treatment  for  departmental  control,  item  26  should  be  calculated,  as 
should  all  the  items  on  the  Operating  Statement,  in  accordance  with  instructions  in  order  to  serve  the  main 
object  of  this  program  of  standardization;  i.  e.,  a  common  basis  for  comparison  of  the  operating  reports 
of  retail  stores.  This  account,  therefore,  consists  of — (a)  Discounts  Earned  on  Merchandise  Purchases, 
LESS,  (b)  amount  obtained  by  applying  average  rate  of  (a)  above  to  value  of  merchandise  on  hand.  (See 
item  13.)  The  amount  so  deducted  should  be  carried  over  into  the  next  fiscal  period  in  a  reserve  account, 
the  entry  then  being  reversed. 

NET  COST  OF  MERCHANDISE  SOLD  (16) 

This  item  is  Gross  Cost  of  Merchandise  Sold  less  Discount  Earned  on  Merchandise  Purchases. 
ALTERATION  COSTS  (17) 

This  item  represents  cost  of  alteration  sales  included  in  Gross  Sales,  item  3. 

Materials  used,  wages  and  other  expenses  of  alteration  rooms  should  be  included  here.  The  sum  of 
these  items  constitutes  an  additional  cost  of  merchandise,  since  a  sale  in  which  alterations  are  involved  is 
not  complete  until  they  are  finished  and  accepted  by  the  purchaser.  In  so  far  as  the  position  of  this  item 
on  the  Operating  Statement  is  concerned,  there  is  a  distinction  between  the  costs  which  it  represents  and 
the  other  additions  to  merchandise  cost.  Item  11,  Freight,  Express  and  Cartage  Inward,  represents  an  ad¬ 
ditional  cost  incurred  in  the  movement  of  merchandise  inward  and  the  placing  of  it  in  stock  while  the  costs 
represented  by  item  17  do  not  originate  until  the  merchandise  begins  to  move  outward. 

MERCHANDISE  COSTS— OWNED  DEPARTMENTS  (18) 

This  item  is  Net  Cost  of  Merchandise  Sold  plus  Alteration  Costs. 

MERCHANDISE  COSTS— LEASED  DEPARTMENTS  (19) 

This  item  represents  the  cost  of  sales  before  considering  expenses  in  leased  sections  as  reflected  in 
special  ledger  account. 

**The  reason  for  treating  manufaeturing  pay-roll  and  materials  separately  is  that  it  is  inadvisable  to  attempt  to  include  manufacturing  departments  in 
the  percentage  of  purchase  mark-up  calculation  under  the  Retail  Inventory  Method.  The  chief  difficulty  lies  in  the  fact  that  there  is  a  fundamental  differ¬ 
ence  between  charges  to  Purchases  for  a  Selling  Department  and  those  for  a  Manufacturing  Department.  When  purchases  for  a  selling  department  are  en¬ 
tered  at  cost  and  retail  in  the  stock  records,  the  marked-up  price  or  Retail  is  placed  on  the  merchandise  tag  attached  to  the  merchandise  and  in  consequence 
there  is  a  basis  of  comparison  at  retail  between  merchandise  and  stock  records  at  inventory  time. 

But,  when  pay-roll  and  materials  are  charged  to  Purchases  against  a  manufacturing  department,  it  is  not  known  in  what  finished  form  they  will  be  work¬ 
ed  up  nor  at  what  retail  that  finished  form  will  sell.  Consequently,  any  mark-up  placed  upon  them  would  be  only  an  estimate,  the  correctness  of  which  there 
would  be  no  subsequent  opportunity  of  verifying  since  it  would  have  been  applied  in  bulk  while  the  finished  product  would  be  transferred  by  the  job  or  piece 


16 


OPERATING  STATEMENT 


*TOTAL  MERCHANDISE  COSTS  (20) 

This  item  is  the  total  of  items  18  and  19. 

OPERATING  EXPENSES— OWNED  DEPARTMENTS  (21) 

This  item  represents  a  class  of  accounts  so  important  that  they  merit  special  treatment  and  have 
received  it  elsewhere  in  this  report  in  the  study  entitled  “Classification  and  Distribution  of  Expense.,, 
For  the  purposes  of  the  Operating  Statement,  it  is  sufficient  to  say,  that  the  caption  of  this  item  covers  all 
expenses  of  the  business,  whether  direct  or  indirect,  which  are  chargeable  to  owned  departments. 

OPERATING  EXPENSES— LEASED  DEPARTMENTS  (22) 

This  item  represents  expenses  similar  to  those  discussed  under  item  21.  but  chargeable  to  leased 
departments. 

OPERATING  EXPENSES— TOTAL  (23) 

This  item  is  the  total  of  items  21  and  22. 

COST  OF  SALES— OWNED  DEPARTMENTS  (24) 

This  item  is  Merchandise  Costs — Owned  Departments  plus  Operating  Expenses — Owned  Depart¬ 
ments. 

COST  OF  SALES— LEASED  DEPARTMENTS  (25) 

This  item  is  Merchandise  Costs — Leased  Departments  plus  Operating  Expenses — Leased  Depart¬ 
ments. 

COST  OF  SALES— TOTAL  (26) 

This  item  is  the  total  of  items  20  and  23  and  also  of  items  24  and  25. 

OPERATING  PROFIT  OR  LOSS  (27) 

This  item  is  Net  Sales  (item  7)  less  Cost  of  Sales — Total  (item  26) 

OTHER  INCOME  AND  LOSSES  (28) 

Caption  only. 

OTHER  INCOME  (29) 

This  item  represents  non-operating  income  from  sources  other  than  the  ordinary  operations  of  the 
business  as  represented  by  the  preceding  items.  The  following  are  typical  “Other  Income”  accounts. 

CREDITS 

RENT  CHARGED  TO  DEPARTMENTS . 

LESS:  RENT  PAID  OR  ACCRUED. . .  ] . 

RENTAL  PROFIT . • .  . 

Representing  excess  of  rent  charged  to  departments  and  included  in  item  23,  Operating  Expenses,  over  rent  paid  or  accrued. 

TELEPHONE  RENTAL,  representing  amounts  received  from  telephone  companies  in  payment  for  space  occupied  by  pay- 
stations  in  the  store. 

INTEREST  CHARGED  TO  DEPARTMENTS  and  included  in  item  23. 

DISCOUNT  EARNED  ON  OTHER  THAN  MERCHANDISE  PURCHASES 
SALES  OF  BOXES,  WASTE,  ETC. 

INTEREST  ON  RECEIVABLES 

♦For  internal  operating  purposes,  or  for  comparisons  with  past  operations,  where  the  merchant  desires  to  obtain  the  equivalent  of  that  which  is 
sometimes  termed  “Gross  Profit”,  a  figure  comparable  to  this  may  be  obtained  by  subtracting  item  No.  20  from  item  No.  7,  which  may  be  called  “Gross 
Income  from  Merchandising”. 


DESCRIPTIVE  TEXT 


17 


INTEREST  ON  SECURITIES— GOVERNMENT 
INTEREST  ON  SECURITIES— OTHER 
DIVIDENDS  FROM  INVESTMENTS 
MISCELLANEOUS 

OTHER  LOSSES  (30) 

This  item  represents  non-operating  losses. 

OTHER  INCOME  OR  LOSSES— NET  (31) 

This  item  is  Other  Income  less  Other  Losses. 

NET  PROFIT  OR  LOSS  (32) 

This  item  is  Operating  Profit  or  Loss  plus  or  less  Other  Income  or  Losses — Net. 

PROVISION  FOR  FEDERAL  INCOME  TAXES  (33) 

These  taxes  are  not  an  expense  but  rather  a  sharing  of  profits  with  the  government.  This  item  there¬ 
fore  represents  that  proportion  of  item  32,  Net  Profit  which  will  satisfy  the  requirements  of  the  government 
as  specified  in  the  tax  laws  applicable  to  the  period. 

BALANCE  TO  CURRENT  PROFIT  AND  LOSS  (34) 

This  item  is  Net  Profit  or  Loss  less  Provision  for  Federal  Income  Tax  and  represents  the  net  accretion 
or  impairment  of  capital  for  the  period. 


OPERATING  ACCOUNTS 


DEFINITIONS 


STOCK  TURNOVER 

Stock  turnover  is  the  figure  arrived  at  by  dividing  the  average  inventory  at  retail  for  the  period  under 
consideration  into  the  sales  for  the  same  period,  or  by  dividing  the  average  inventory  at  cost  into  the  cost 
of  sales.  In  the  interests  of  uniformity,  it  is  recommended  that  the  first,  or  retail  method  be  adopted  when¬ 
ever  the  retail  inventory  method  is  used. 

AVERAGE  INVENTORY 

The  average  inventory,  either  cost  or  retail,  for  a  given  period  is  determined  by  adding  together  the 
total  amounts  of  all  the  inventories  recorded  within  such  period,  including  the  initial  inventory,  and  divid¬ 
ing  the  figure  so  arrived  at  by  the  number  of  inventories  so  recorded.  For  example:  Add  together  the 
initial  inventory  and  the  inventories  recorded  at  the  end  of  each  week  during  the  year  and  divide  their  sum 
by  53;  or  add  together  the  initial  inventory  and  the  inventories  recorded  at  the  end  of  each  month  and 
divide  their  sum  by  13.  The  second  method,  while  more  practicable  than  the  first,  is  not  as  accurate,  since 
exceptionally  high  or  low  inventories  occurring  at  times  other  than  the  end  of  a  calendar  month  will  not 
be  included  in  the  calculation  and  hence  will  not  affect  the  average. 

The  larger  the  number  of  recorded  inventories  within  the  period  the  more  nearly  will  the  resultant 
average  inventory  approximate  the  truth  and  the  more  accurate  will  be  the  turnover  arrived  at  by 
using  it  as  a  divisor. 

SALE 

A  sale  is  a  transaction  whereby,  in  exchange  for  cash  or  a  promise  to  pay  either  expressed  or  implied, 
title  to  merchandise  bought  by  the  merchant  for  resale  at  a  profit  or  manufactured  by  him  either  in  whole 
or  in  part  for  sale  at  a  profit,  passes  to  a  purchaser.  The  definition  in  the  Uniform  Sales  Act  reads:  “A 
sale  of  goods  is  an  agreement  whereby  the  seller  transfers  the  property  in  goods  to  the  buyer  for  a  consid¬ 
eration  called  the  price.” 

RETURNS 

A  return  is  a  transaction  whereby,  in  exchange  for  the  physical  return  of  and  title  to  merchandise 
previously  sold,  the  merchant  refunds  the  purchase  price  to  the  customer  or  credits  his  account. 

ALLOWANCES 

An  allowance  is  a  reduction  which  the  merchant  for  any  reason  may  find  it  expedient  to  make  in  the 
price  of  the  merchandise  involved  in  any  sale  previously  concluded. 

CUSTOMERS’  AND  EMPLOYEES’  DISCOUNTS 

Customers’  and  Employees’  Discounts  are  reductions  in  the  price  of  merchandise  agreed  upon  between 
buyer  and  seller  before  the  conclusion  of  the  sale,  and  actually  granted  in  the  transaction  in  which  title 
passes,  becoming  thereby  a  part  of  the  original  purchase  transaction. 


18 


DEFINITIONS 


19 


RETAIL  INVENTORY  METHOD 

The  retail  method  of  taking  inventory  has  been  laid  down  by  the  government  in  TREASURY 
DECISION  3058  issued  August  16,  1920,  and  in  a  letter  to  the  National  Retail  Dry  Goods  Association 
relative  thereto  sent  from  the  Treasury  Department  January  21,  1921.* 


»(T.  D.  3058; 


INCOME  TAX 


Section  203,  Revenue  Act  of  1918:  Inventories  of  Retail  Dry  Goods  Dealers 

“TREASURY  DEPARTMENT 


To  Collectors  or  Internal  Revenue  and  Others  Concerned: 


Office  of  Commissioner  of  Internal  Revenue 

Washington,  D.  C. 


Regulations  45  are  hereby  amended  by  inserting  Article  1588,  reading  as-fpllows: 

Article  1588.  _  I nventories  of  Retail  Dry  Goods  Dealers.  (1)  Retail  dry  goods  dealers  who  employ  the  ‘retail  method,  ’  which  is  essentially  a  ‘cost’  method 
of  valuing  inventories,  will  be  permitted  to  make  their  returns  upon  that  basis,  provided  (a)  that  the  use  of  such  method  is  designated  upon  the  return,  (b) 
that  accurate  accounts  are  kept,  and  (c)  that  such  method  be  adhered  to  in  subsequent  years,  unless  a  change  is  authorized  by  the  Commissioner.  The  ‘re¬ 
tail  method’  consists  in  computing  the  ‘cost’  of  goods  on  hand  fiom  the  ‘percentage  of  purchase  mark-up’  and  the  ‘retail  value’  of  goods  on  hand. 

(2)  A  taxpayer  employing  the  ‘retail  method’  of  valuing  inventories  shall  maintain  and  preserve  in  permanent  form,  for  the  inspection  of  internal 
revenue  officers,  the  accounts  and  records  of  each  year,  together  with  a  schedule  of  ail  mark-downs  in  each  department,  and  such  mark-downs  shall  not  be 
included  in  the  computation  of  the  retail  value  of  goods  on  hand  unless  the  goods  so  marked  down  have  been  actually  sold. 

(3)  The  following  general  plan  of  taking  an  inventory  by  the  ‘retail  method’  will,  it  is  believed,  be  found  readily  adaptable  to  the  requirements  of 
most  retail  dry  goods  dealers: 

(A)  The  percentage  of  purchase  mark-up  is  computed  as  follows:  The  value  of  all  merchandise,  as  received,  is  recorded  by  departments  at  two  prices, 
(a)  invoice  cost  plus  transportation,  and  (b)  original  retail  sale  price.  These  cost  and  retail  values  are  accumulated  as  recorded  during  the  year.  The  total 
retail  value  minus  the  total  cost  value  equals  the  total  purchase  mark-up,  which  divided  by  the  total  retail  value  gives  the  percentage  of  purchase  mark-up. 

(B)  The  retail  value  of  goods  on  hand  is  computed  as  follows:  A  record  is  kept  of  (a)  the  amounts  of  all  sales  at  retail,  (b)  any  variations  from  the 
inventory  prices  of  the  preceding  year  of  goods  carried  over  from  that  year,  and  (c)  any  variations  from  the  original  sale  prices,  such  as  subsequent  mark-ups 
or  mark-downs  (note  paragraph  2).  The  retail  value  of  the  opening  inventories  plus  the  retail  value  of  the  purchases  (plus  or  minus  the  algebraic  sum  of  all 
subsequent  mark-ups,  and  mark-downs  in  the  case  of  goods  actually  sold)  minus  the  retail  value  of  the  sales  equals  the  retail  value  of  the  book  inventory  of 
goods  on  hand.  Physical  inventories  by  departments  are  taken  of  goods  on  hand  at  retail  at  the  close  of  the  taxable  year,  and  the  retail  value  of  the  book 
inventory  of  goods  on  hand  is  adjusted  accordingly. 

(C)  The  cost  of  goods  on  hand  is  computed  by  subtracting  from  one  hundred  per  cent,  the  percentage  of  purchase  mark-up,  which  gives  the  percentage 
of  cost,  and  multiplying  the  retail  value  of  goods  on  hand  by  such  percentage  of  cost. 

(Signed)  PAUL  F.  MYERS, 
Acting  Commissioner  of  Internal  Revenue. 

Approved:  August  16,  1920. 

S.  P.  Gilrert,  Jr. 

Acting  Secretary  of  the  Treasury.” 


“TREASURY  DEPARTMENT 

Washington,  January  21,  1921. 

National  Retail  Dry  Goods  Association, 

200  Fifth  Avenue, 

New  York,  N.  Y. 


Sirs:  Reference  is  made  to  your  letter  of  January  13,  1921,  relative  to  Tieasury  Decision  No.  3058,  issued  August  16,  1920  (Article  1588 — Inventories 
of  Retail  Dry  Goods  Dealers),  asking  for  further  details  as  to  proper  procedure  within  the  meaning  of  the  Regulations. 


Your  questions  are  taken  up  and  answered  in  the  order  you  have  presented  them: 

1.  The  use  of  the  retail  method  is  by  the  decision  confined  to  retail  dry  goods  dealers.  Other  organizations  and  individual  stores  who  conduct  retail  estab¬ 
lishments  and  follow  essentially  the  retail  method  of  dry  goods  stores,  may  be  allowed  this  method  upon  application  to  the  Bureau  of  Internal  Revenue. 

2.  The  designation  of  the  method  as  a  ‘cost’  method.  It  was  not  intended  that  the  apparent  limitation  should  be  inflexible.  It  is  recognized  that  on  a  con¬ 
stant  or  rising  market  the  retail  method  is  approximately  a  ‘cost’  basis  and  that  on  a  falling  market  it  results  in  a  reduction  to  ‘cost  or  market,  whieh- 
evei  is  lower.’ 

3.  Preserving  records.  There  must  be  a  permanent  form  of  recording  by  departments,  purchases  showing  the  firm  name,  date  of  invoice,  invoice  cost,  and 
retail  sales  price.  A  permanent  record  must  be  kept  of  the  accumulation  of  all  department  purchases,  mark-downs,  sales,  stocks,  etc.  It  must  be  borne 
in  mind  that  undei  no  circumstances  will  arbitrary  standard  percentages  of  purchase  mark-up  be  allowed  in  the  determination  of  the  ‘cost’  or  ‘cost  or 
market’  value  of  retail  inventories,  but  that  such  percentage  must  be  the  purchase  mark-up  percentage  disclosed  by  the  department  records  of  the  fiscal 
period  for  which  the  return  is  made. 

4.  Ooening  Inventory.  In  section  ‘A’  the  words  ‘the  value  of  all  merchandise  as  received’  is  inclusive  of  inventory  at  the  beginning  of  the  peiiod.  The  pur¬ 
chase  mark-up  must  be  computed  as  follows: 

Cost:  Inventory  at  cost  at  beginning 

Purchases  at  cost 
Transportation 

Retail:  Inventory  at  sales  price 
Purchases  at  sales  price 


5.  Appreciation  in  retail  values  of  goods  on  hand.  Within  the  meaning  of  the  Article,  it  is  proper  to  include  as  a  part  of  ‘original  retail  sales  price’  the  actual 
increase  in  the  original  sales  price  which  has  been  brought  about  by  market  conditions  or  by  incorrect  pricing  when  the  goods  were  put  into  stock. 

For  the  convenience  of  the  examining  officer,  a  special  form  should  be  provided;  complete  information  by  items  of  the  increased  form  the  original  retail 
must  be  shown;  reference,  if  possible,  must  be  made  to  the  original  invoice;  entry  and  the  reason  for  the  increase  freely  explained.  All  such  amended 
retail  increases  must  be  approved  by  the  buyer  of  the  department  and  merchandise  manager  or  other  responsible  official  and  they  should  be  so  filed  that 
quick  reference  to  them  may  be  made.  Entry  of  such  increased  retail  properly  belongs  in  department  purchase  books,  although  it  may  be  set  up  as  a  sep¬ 
arate  item  in  the  accumulated  records  of  the  department.  The  same  forms  that  are  used  to  record  such  price  increases  should  not  be  used  for  mark- 
downs  and  in  no  instance  will  a  e tore  be  allowed  to  include  as  retail  increases  a  mark-up  which  has  been  taken  as  a  correction  or  cancellation  of  a  mark-down ; 
such  mark-up  must  be  regarded  and  treated  in  all  cases  as  opposite  to  mark-down. 


6.  Proper  mark-downs  substantiated  by  record  of  facts  will  be  permitted.  The  decision  is  not  intended  to  disturb  the  procedure  in  stores  which  have  prop¬ 
erly  handled  mark-downs,  but  instances  where  arbitrary  reductions  from  retail  values  have  been  made  because  of  the  desire  to  provide  for  depreciation 
and  obsolescence  with  no  actual  offering  to  the  public  of  the  goods  on  which  the  mark-downs  were  claimed,  cannot  be  recognized.  Under  no  circumstances 
will  a  store  be  allowed  to  depreciate  its  stock  in  any  way  except  by  the  offering  of  it  to  its  customers  at  such  reduced  prices.  The  procedure  of  stores  in 
regard  to  mark-downs  will  be  deemed  proper  if  in  any  fiscal  year  or  period  of  that  year  the  goods  so  marked  down  are  in  proportion  to  current  sales,  to 
stock  on  hand,  to  mark-down  of  preceding  months  of  preceding  year,  or  if  evidence  can  be  submitted  as  to  market  changes  which  have  forced  a  reduction 
in  retail  prices  necessary  to  bring  about  a  parity  with  the  selling  price  of  the  same  goods  which  have  been  purchased  or  could  be  purchased  at  a  reduced 
cost. 


In  conclusion  it  should  be  noted  that  a  store  who  has  employed  its  retail  method  in  the  past,  may  now  specify  in  the  return  that  such  method  is  used, 
as  a  basis  on  valuing  inventories,  regardless  of  the  fact  that  in  past  years  it  reported  on  a  ‘cost’  or  ‘cost  or  market  whichever  is  lower’  basis.  However,  the 
use  of  the  retail  method  will  not  be  recognized  unless  it  has  been  correctly  followed  throughout  the  entire  fiscal  or  calendar  year  period  for  which  the  return 
is  made. 

Respectfully, 


(Signed)  WM.  M.  WILLIAMS 


Commissioner.  ’  ’ 


20 


OPERATING  ACCOUNTS 


The  Government’s  requirements  are  met  by  the  following  formula: 

RETAIL  INVENTORY  METHOD 


FORMULA 


- 

(1) 

Cost 

(2) 

Retail 

(3) 

Mark-up 

(4) 

%0f 

Mark-up 

1  Opening  Inventory  (lines  9  and  10  of  preceding  period). 

2  Purchases . 

3  Freight  Express  and  Cartage,  Inward . 

4  Additional  Mark-Ups,  less  additional  Mark-Up  Can¬ 

cellations . 

XXX  XX 

XXX  XX 

•  .  •  •  • 

XXX  XX 

XXX  XX 

XXX  XX 

XXX  XX 

5  Total  of  Inventory,  plus  Additions . 

. 

. 

. 

. 

6  Net  Sales . 

7  Mark-Downs,  less  Mark-Down  Cancellations . 

XXX  XX 

XXX  XX 

. 

XXX  XX 

XXX  XX 

XXX  XX 

XXX  XX 

8  Total  Retail  Deduction  (sum  of  items  6  and  7) . 

XXX  XX 

. 

XXX  XX 

XXX  XX 

9  Resultant  Retail  Inventory  (Retail  Inventory  on  line 

5,  Column  2,  minus  item  8) . 

10  Calculation  of  Cost  Percentage: 

(a)  Total  Percentage .  100% 

(b)  Percentage  of  Mark-Up  (line  5,  Col.  4) . % 

XXX  XX 

. 

XXX  XX 

XXX  XX 

(c)  Percentage  of  Cost  [  (a)  minus  (b)  ] . % 

11  Cost  Inventory  (item  10  (c)  applied  to  item  9) .......  . 

12  Resultant  Mark-Up  and  Percentage  (item  9,  minus 

item  11) . 

XXX  XX 

XXX  XX 

XXX  XX 

XXX  XX 

XXX  XX 

13  Gross  Cost  of  Merchandise  Sold  (difference  between 
Cost  Inventories  on  lines  5  and  11) . 

....  . . 

XXX  XX 

XXX  XX 

XXX  XX 

OPERATING  ACCOUNTS 


CUSTOMS  AND  USAGES 


In  the  descriptive  text  accompanying  item  15  on  the  operating  statement,  it  is  stated  that  some  busi¬ 
nesses  treat  their  cash  discounts  on  merchandise  purchases  as  a  reduction  of  the  cost  of  those  purchases, 
while  others  consider  them  as  “Other  Income”  and  credit  them  as  such  at  the  bottom  of  the  operating 
statement  after  Net  Operating  Profit  (or  Loss)  is  determined. 

Business  men  who  use  the  first  method  support  it  by  citing,  first,  its  admitted  soundness  from  the 
standpoint  of  accounting  theory,  and,  second,  its  advisability  from  the  merchandising  standpoint  by  reason 
of  the  fact  that  the  crediting  to  departments  of  everything  that  they  earn  constitutes  the  most  effective 
incentive  for  department  managers,  particularly  where  they  operate  under  some  bonus  or  profit-sharing 
method.  They  say  that  the  best  way  to  make  a  merchant  out  of  a  department  manager  is  to  cause  him  to 
operate  with  a  complete  instead  of  only  a  partial  knowledge  of  the  facts. 

On  the  other  hand,  those  who  consider  discounts  as  “Other  Income,”  while  they  show  no  disposition 
to  question  the  accounting  correctness  of  the  other  method,  do  challenge  its  expediency  in  no  uncertain 
way.  They  advance  the  argument  that  discounts  are  the  store’s  “anchor  to  windward,”  safe-guarding  it 
as  a  business  entity  against  the  merchandising  mistakes  of  department  managers  whose  abilities  vary 
widely  both  as  between  individuals  and  as  between  different  years  in  the  same  individual’s  career.  This 
argument,  of  course,  applies  increasingly  with  the  size  of  the  business  and  the  degree  of  departmentization 
within  it.  Moreover,  they  quote  many  of  the  most  prominent  merchants  of  the  country  to  the  .effect  that 
their  success  has  been  built  on  the  careful  reservation  of  their  cash  discounts. 

Their  opponents  grant  that,  in  so  far  as  mark-up  is  concerned,  the  retail  price  of  the  merchandise 
should  be  determined  without  deducting  the  discount  from  the  invoice  cost,  but  claim  that  the  admitted 
advisability  of  this  does  not  vitiate  their  other  arguments. 

Whatever  the  numerical  strength  of  the  opposing  factions  on  this  question,  the  fact  remains  that  there 
is  a  decided  division  of  opinion  which  necessitates  the  accounting  treatment  of  this  item  as  shown  on  the 
Operating  Statement.  The  location  of  item  15  permits  of  either  application. 


21 


PART  III 


CLASSIFICATION  AND  DISTRIBUTION  OF  EXPENSE 

DESCRIPTIVE  TEXT 


The  Classification  and  Distribution  of  Expense  is  one  of  the  important,  if  not  the  most  important, 
items  entering  into  the  accounting  of  retail  stores,  and  unless  properly  handled,  may  vitally  affect  the  net 
results  of  a  department  or  business. 

Operating  conditions  in  localities  and  individual  stores  vary  greatly:  therefore,  in  order  to  provide 
methods  that  would  be  generally  adaptable,  there  must  be  flexibility.  In  this  publication,  therefore,  the 
expenses  have  been  minutely  subdivided  as  to  selling,  service,  manufacturing  and  alteration  departments. 

This  expense  classification  has  been  compiled  for  the  smaller  store  which  desires  a  simple,  practical 
distribution  of  expense,  as  well  as  for  the  larger  store  which  requires  a  detailed  distribution  of  expense. 
The  small  and  large  classifications  have  been  so  arranged  as  to  dovetail  into  each  other. 

The  expense  classification  has  been  so  drafted  that  it  is  possible  for  any  store,  regardless  of  size,  to 
accomplish  any  or  all  detail  desired.  As  the  purpose  of  the  small  stores  first  accounting  procedure  is  the 
result  of  the  business  as  a  whole,  so  we  have  used  this  as  the  basis  of  the  expense  classification  and  gradu¬ 
ally  expanding  until  the  classification  is  completely  departmentized.  Departmental  classification  of  ex¬ 
penses  is  the  outgrowth  of  a  classification  that  pertained  to  the  business  as  a  whole,  without  regard  for 
departments. 

FACTORS 

The  two  principal  factors  of  expense  classification  and  distribution  are  as  follows. 

FIRST  FOURTEEN  (14)  NATURAL  DIVISIONS 
SECOND  FIVE  (5)  FUNCTIONAL  GROUP  CLASSIFICATIONS 

The  Natural  Divisions  of  Expense  are  those  divisions  or  accounts  to  which  expense  is  naturally  classi¬ 
fied  or  charged. 

The  Functional  Group  Classifications  of  Expense  represents  the  grouping  of  the  Natural  Divisions 
as  they  may  apply  to  the  functional  operations  of  a  store. 

These  factors  are  referred  to  in  the  above  order,  as  in  charging  or  classifying  an  item  of  expense  the 
Natural  Division  is  usually  first  determined  or  known,  before  it  is  classified  as  to  which  function  of  the 
store  it  may  apply. 

It  is  essential  that  stores  should  be  departmentized,  and  in  classifying  and  distributing  an  item  of 
expense,  the  Natural  Division  determines  the  class  of  expense  and  is  only  a  factor  in  departmental  expenses 
in  so  far  as  maintaining  detail  analysis  is  concerned. 

NATURAL  DIVISIONS 

The  Fourteen  (14)  Divisions  of  Expense  are  natural  or  major  divisions  into  which  all  items  of  expense 
normally  fall  and  are  as  follows: 

• 

01  SALARIES  AND  WAGES 
02  RENTALS 
03  ADVERTISING 
04  TAXES 
05  INTEREST 
06  SUPPLIES 


22 


DESCRIPTIVE  TEXT 


23 


07  SERVICE  PURCHASED 
08  UNCLASSIFIED 
09  TRAVELING 

10  COMMUNICATION 

11  REPAIRS 

12  INSURANCE 

Vl3  depreciation 
14  PROFESSIONAL  SERVICES 

The  Fourteen  (14)  Divisions  are  arranged  in  order  of  their  relation  to  a  business  from  the  viewpoint 
of  the  volume  of  expenditure  and  are  the  basic  accounts  for  distribution  of  expenses.  These  accounts 
afford  a  simple  classification  of  expense  for  the  small  store  which  can  be  expanded  to  suit  the  volume  of 
business  of  the  individual  merchant  or  his  own  desire  for  detailed  analysis. 

The  numbers  shown  opposite  each  of  the  divisions  are  the  basic  numbers  used  in  the  numbering  plan 
herein  employed. 

The  major  items  of  expense,  properly  chargeable  to  the  respective  captions  of  the  Fourteen  (14)  Natural 
Divisions,  are  summarized  as  follows: 

SALARIES  AND  WAGES  (01) 

Salaries  and  Wages  include  all  compensation  to  employees  for  salaries,  wages,  commissions,  bonuses, 
P.  M.’s  and  suppers. 

RENTALS  (02) 

Rentals  include  all  rents  paid  for  premises  occupied  and  interest  on  valuation  of  owned  premises,  or 
if  premises  are  leased  and  the  business  has  made  improvements,  both  rents  paid  and  interest  on  investment 
therein  should  be  considered  as  rental.  The  rate  of  interest  on  owned  premises  should  be  based  upon  six 
percent  (6%)  for  the  purpose  of  comparison.  Taxes  and  Insurance  should  be  charged  to  their  respective 
accounts  when  premises  are  leased,  subject  to  the  payment  of  these  items,  or  when  they  are  owned. 

The  charts  of  expense  accounts  provide  for  the  charging  of  rents  to  selling,  alteration  and  manufac¬ 
turing  departments,  windows  and  to  garage  if  you  maintain  your  own  delivery  equipment,  for  the  purpose 
of  simplicity.  Rents  for  outside  buying  offices  should  be  accordingly  charged. 

If  any  of  the  premises  owned  or  leased  are  rented,  the  income  and  expense  should  be  handled  as  a 
separate  operating  unit  and  not  under  this  caption. 

ADVERTISING  (03) 

Advertising  includes  all  newspaper,  periodical  and  program  space,  street-car  cards,  billboards,  catalogs, 
circulars,  electric  signs,  novelties  and  contributions  that  have  a  direct  advertising  value. 

TAXES  (04) 

Taxes  include  all  city,  county  and  state  taxes  on  land,  buildings,  fixtures  and  equipment  and  mer¬ 
chandise,  moneys,  accounts,  etc.,  state  excise  or  corporation,  federal  capital  stock,  state  taxes  of  outside 
buying  offices  and  licenses. 

INTEREST  (05) 

Interest  is  included  on  the  net  investment  in  the  business,  except  that  on  owned  land  and  buildings  or 
the  improvements  on  leased  premises  which  has  been  provided  for  under  rent. 

The  interest  on  merchandise  should  be  computed  on  the  average  cost  inventory  at  the  end  of  the 
period ;  fixtures  and  equipment  on  the  depreciated  value  at  the  beginning  of  the  period ;  on  all  other  assets 
used  in  the  regular  operation  of  the  business,  including  cash,  customers  and  employees’  notes  and  accounts, 
merchandise  in  transit  and  paid  for  in  advance,  deferred  charges  and  any  other  operating  assets,  less  lia¬ 
bilities  and  reserves,  but  excluding  capital  stock,  investment  accounts  of  owners,  and  profit  and  loss  or 
surplus. 

Liabilities  having  been  deducted  in  computing  net  assets,  the  interest  on  borrowed  capital,  either 
notes  or  accounts  should  be  included  under  this  caption.  All  interest  earned  on  notes  or  accounts  in  the 
regular  course  of  business  should  be  credited  to  interest  on  notes  and  accounts  referred  to  in  the  pre¬ 
ceding  paragraph. 

Interest  earned  on  investments  outside  of  the  regular  operations  of  the  business  should  not  be  included 
under  this  caption. 

The  interest  computations  should  be  based  upon  six  percent  (6%)  for  the  purpose  of  uniformity  and 
comparison. 


24 


CLASSIFICATION  AND  DISTRIBUTION  OF  EXPENSE 


SUPPLIES  (06) 

This  division  includes  all  supplies  used  in  operating  the  business,  including  all  items  classed  as  supplies 
and  water,  coal,  gas  and  publication  subscriptions. 

SERVICE  PURCHASED  (07) 

This  division  is  provided  to  take  care  of  light,  heat  and  power  and  delivery,  only  when  this  class  of 
service  is  purchased  from  outside  sources. 

UNCLASSIFIED  (08) 

Divisions  not  definitely  provided  for  under  other  captions  are  herein  included  and  comprise  classified 
advertising,  memberships  and  dues,  entertainment,  welfare,  inspection  fees,  carfare,  cashiers’  shortages, 
errors,  donations  (cash),  unauthorized  purchases,  discount  not  taken  or  not  allowed,  etc. 

TRAVELING  (09) 

Traveling  expenses  incurred  in  connection  with  operating  the  business,  including  buying  and  selling. 
COMMUNICATION  (10) 

This  division  includes  all  postage,  (except  parcel  postage  on  packages,)  telephone,  telegrams  and  cable 
charges. 

REPAIRS  (11) 

Repairs  to  buildings,  fixtures,  equipment,  power  plant  and  delivery  equipment  should  be  included  in 
this  account  and  consists  of  all  ordinary  repairs  to  buildings  and  equipment,  for  which  depreciation  has 
not  been  provided  for.  New  equipment  or  improvements  that  are  proper  charges  to  capital  assets  should 
not  be  herein  included. 

INSURANCE  (12) 

This  division  includes  all  forms  of  insurance  covering  losses  sustained  from  fire,  liability,  sprinkler 
leakage,  use  and  occupancy,  life  and  theft. 

DEPRECIATION  (13) 

Depreciation  includes  the  amount  considered  as  covering  amortization,  wear,  tear  and  obsolescence 
of  buildings,  leasehold,  fixtures  and  equipment.  Under  this  caption  is  also  included  losses  resulting  from, 
or  reserve  provided  for  bad  accounts. 

PROFESSIONAL  SERVICES  (14) 

This  division  includes  all  legal,  accounting,  secret  service  and  advertising  professional  services  pur¬ 
chased,  credit  information  and  collection  costs. 

The  dual  numbering  system  has  been  adopted,  as  it  affords  an  expansion  to  ninety-nine  (99)  sub¬ 
divisions  for  each  division  if  desired. 

The  subdivisions  of  each  Natural  Division  are  shown  by  Chart  16,  Volume  II,  in  numerical  order, 
divided  into  three  (3)  classes  of  stores,  so  as  to  provide  for  the  small  and  the  large  store.  This  chart  will 
assist  the  small  store  in  the  allocation  of  items  of  expense  to  the  proper  account  and  furnishes  the  relation 
of  accounts  of  the  different  classes  of  stores,  one  to  another. 

It  is  suggested  that  the  numbering  plan  herein  used  be  adopted;  expanding  when  necessary,  or  using 
such  subdivisions  as  meet  the  individual  conditions,  as  this  will  place  all  stores,  large  or  small,  on  a  stand¬ 
ardized  basis  and  work  for  uniformity.  The  basis  of  Successful  standardization  in  accounting  in  other 
classes  of  business  has  been  the  general  adoption  of  a  fixed  numbering  plan  by  which  the  accountant  be¬ 
comes  as  familiar  with  the  number  as  with  the  name  of  the  account. 

Where  a  complete  numbering  system  is  already  in  operation  or  wrhere  in  a  small  business  a  more  simple 
system  is  preferred,  the  store’s  own  numbering  plan  may  be  continued,  provided,  that  whenever  reports 
or  figures  are  prepared  for  comparison  with  other  stores,  reference  is  made  in  such  reports  to  the  standard 
numbers  as  required  in  this  classification.  In  this  connection  Charts  16  and  17  have  been  prepared, 
so  that  a  store  may  place  their  own  account  number  opposite  the  respective  division  or  subdivision. 


DESCRIPTIVE  TEXT 


25 


“77 ; - 

FUNCTIONAL  GROUP  CLASSIFICATIONS 

i 

The  Five  (5)  Group  Classifications  of  Expense  follow  closely  the  natural  functions  of  a  store,  as  follows: 
A  ADMINISTRATIVE 

0  OCCUPANCY  (including  LIGHT,  HEAT  AND  POWER) 

P  PUBLICITY 
t|^  B  BUYING 

S  SELLING  (including  DELIVERY) 

The  Five  (5)  Group  Classifications  are  arranged  in  sequence  of  the  usual  organization  procedure. 
The  letters  shown  opposite  each  functional  group  are  the  designated  symbols  for  each  group  classi¬ 
fication  and  should  be  prefixed  to  all  items  of  expense  charged  direct  to  selling  departments. 

In  alloting  numbers  and  letters  throughout  the  entire  expense  classification  it  has  been  the  purpose 
to  avoid  duplications  and  have  each  symbol  represent  an  individual  item,  grouping  or  designation  without 
confliction. 

ADMINISTRATIVE  (A) 

This  function  covers  all  of  the  General  Administrative  Expenses  of  a  store  and  includes  Executive 
Offices,  Accounting  Offices,  Credit  Offices,  Superintendency  and  General  Store  Expenses. 

OCCUPANCY  (0) 

Items  applicable  to  maintaining  the  premises  occupied,  including  fixtures  and  equipment,  have  been 
grouped  under  the  Occupancy  function  and  include  rentals  of  buildings  or  interest  on  owned  premises, 
taxes,  insurance,  depreciation,  light,  heat  and  power,  and  cost  of  maintaining  all  buildings  and  fixtures, 
so  that  they  may  be  used  for  retail  purposes. 

PUBLICITY  (P) 

Under  this  function  is  included  all  items  pertaining  to  newspaper,  circular,  bill  board  and  other  forms 
of  advertising,  interior,  exterior  and  window  displays. 

BUYING  (B) 

Included  under  this  function  are  all  items  pertaining  to  the  buying  of  merchandise  and  includes  mer¬ 
chandising  offices,  outside  buying  offices,  merchandise  comparison  office,  receiving,  marking  and  stock  rooms. 

SELLING  (S) 

This  function  covers  all  of  the  expenses  necessary  in  the  selling  of  the  merchandise  from  the  time  it 
is  received  in  the  department  up  to  and  including  the  cost  of  delivery  to  the  customer  and  including  any 
adjustments  made  thereafter. 

This  grouping  of  expense  expenditures  is  in  accordance  with  the  operating  functions  of  a  retail  store 
and  affords  easy  comparison  and  effective  control. 

Merchants  will  find  these  functional  groupings  especially  suited  to  any  retail  store,  regardless  of  size, 
and  as  the  small  store  develops,  or  greater  detail  is  desired,  the  respective  groups  can  be  expanded  into 
their  subdivisions. 

The  subdivisions  or  departments  into  which  the  Five  (5)  Group  Classifications  may  be  respectively  sub¬ 
divided,  classified  as  to  four  (4)  classes  or  sizes  of  stores,  are  shown  on  Chart  9  and  allow  for  flexi¬ 
bility  between  the  classes  to  meet  individual  operating  conditions.  The  numbers  shown  opposite  the  de¬ 
partments  applicable  to  the  Five  (5)  Group  Classifications  are  suggestive  only. 

All  selling,  manufacturing,  alteration  and  service  departments  should  be  numbered  from  1  up,  in  groups 
according  to  classes,  allowing  sufficient  numbers  for  future  expansion.  The  numbers  allotted  to  each 
department,  when  prefixed  to  the  expense  division  or  subdivision  number,  will  serve  to  identify  the  expense 
item  with  its  exact  location  in  the  expense  classification.  In  charging  direct  expenses  to  selling  depart¬ 
ments,  the  letter  designating  the  group  classification  should  be  prefixed,  so  as  to  properly  collate  all  items 
under  the  Five  (5)  Functional  Group  Classifications  without  redistribution. 


26 


CLASSIFICATION  AND  DISTRIBUTION  OF  EXPENSE 


ALTERATION  AND  MANUFACTURING 

The  Alteration  and  Manufacturing  Department  expenses  should  be  distributed  in  accordance  with 
the  Fourteen  (14)  Natural  Divisions,  but  are  not  applicable  to  the  Five  (5)  Functional  Group  Classifications. 

A  distinction  should  be  drawn  between  Alteration  and  Manufacturing  Departments.  Alteration 
Departments  are  those  where  the  operation  is  in  effect;  merely  the  completion  of  a  sale;  Manufacturing 
Departments  are  those  in  which  either  material  or  labor,  or  both,  are  added  to” the  value  of  the  merchandise, 
or  are  used  in  the  creation  of  new  merchandise.  The  Alteration  Departments  are  chargeable  to  “CosUof 
Sales’'  and  the  Manufacturing  Departments  to  “Inventory”  through  the  Purchase  or  Transfer  Account. 

The  letter  “W”  has  been  designated  for  this  group  of  departments. 

DISTRIBUTION  AND  PRORATION 

All  expenses  should  be  charged  direct,  wherever  possible,  to  the  selling  departments  to  which  they 
apply,  keeping  in  mind  that  the  Five  (5)  Functional  Group  Classifications  should  be  preserved. 

The  Natural  Divisions  and  Functional  Group  Classifications  of  Expense  are  consolidated  so  as  to  obtain 
a  departmental  distribution,  as  well  as  detail  analysis,  and  in  this  connection  Charts  10,  11,  12,  13,  14  and 
15,  Volume  II,  have  been  prepared  to  exhibit  the  complete  Chart  of  Expense  Accounts,  as  they  apply  to 
each  subdivision  or  department  of  the  respective  group  classification.  In  connection  with  the  charts  above 
referred  to,  Chart  17,  Volume  II,  Alphabetical  Classification  of  Expense  Accounts,  will  afford  a  ready 
reference  for  the  distribution  of  expense  items. 

All  expenses  are  chargeable  either,  to  operating  or  selling  departments,  or  to  service  or  non¬ 
selling  departments.  Charges  to  service  or  non-selling  departments  are  then  redistributed  to  the  operating 
or  selling  departments  on  either  a  cost  or  a  prorated  basis.  For  example,  should  the  Circular  Advertising 
(Publicity)  Department  prepare  advertising  matter  specifically  for  the  Millinery  Department,  the  total 
cost  of  that  circular  should  be  ascertained  and  accordingly  charged  to  the  Millinery  Department,  thus 
eliminating  this  cost  from  the  total  operating  expense  of  the  Circular  Advertising  Department. 

Chart  18  has  been  compiled  so  as  to  cover  distribution  of  all  direct  and  prorated  expenses  by  classes  of 
stores,  providing  simple  bases  of  proration  for  the  small  store  and  more  elaborate  proration  for  those 
stores  that  desire  intricate  detail. 

The  following  examples  of  classification  of  department  expenses  show  the  application  and  method 
of  the  numbering  plan  herein  used. 

B  409-2 

B  Buying  (Group  Classification) 

4  Millinery  (Selling  Department) 

09  Traveling  (Natural  Division) 

2  Traveling — Buying  (Subdivision) 

2406-7 

.  24  Operating  (Occupancy-Service  Department) 

06  Supplies  (Natural  Division) 

7  Supplies — Operating  (Subdivision) 

6211-7 

62  Garage  and  Automobiles  (Selling-Service  Department) 

11  Repairs  (Natural  Division) 

7  Repairs — Automobiles  (Subdivision) 

In  connection,  with  the  distribution  applicable  to  the  small  store,  where  the  Fourteen  (14)  Natural 
Divisions  are  used  only,  the  Functional  Group  Classifications  or  subdivisions  do  not  apply,  and  the  appli¬ 
cation  is  very  simple;  in  the  case  of  Class  “A”  Stores,  the  operation  is  practically  the  same  as  the  exam¬ 
ples  shown,  with  the  exception  that  there  are  virtually  no  subdivisions  of  the  natural  divisions. 


DESCRIPTIVE  TEXT 


27 


CHARTS 

In  presenting  the  expense  classification,  the  plan  of  charts,  as  shown  in  detail  in  Volume  II,  were 
decided  as  being  the  most  complete  and  comprehensive  form,  as  each  chart  places  before  the  eye  all  detail 
pertaining  to  the  respective  unit  of  the  entire  plan. 

The  purposes  of  the  respective  charts  are  as  follows: 

CHART  No.  7.  Comparative  Statement  of  Expenses.  This  statement  is  to  show  the  detail  of  expenses 
of  a  business  as  a  whole,  bjr  the  Fourteen  (14)  Natural  Divisions  and  the  Five  (5)  Functional  Group  Classi¬ 
fications,  for  the  current  month  and  year  to  date,  with  the  previous  year  comparisons.  Separate  statements 
should  be  used  for  owned  and  leased  departments. 

CHART  No.  8.  Chart  of  the  Natural  Divisions  of  Expense  as  they  appear  in  the  Five  (5)  Functional 
Group  Classifications.  This  chart  is  to  show  which  of  the  natural  divisions  are  applicable  to  the  group 
classifications. 

CHART  No.  9.  Chart  of  Functional  Group  Classifications  of  Expense  and  Subdivisions  thereof.  This 
chart  is  to  show  the  subdivisions  or  departments  which  apply  to  each  group  classification.  This  chart 
provides  for  four  (4)  classes  of  stores,  and  a  merchant  can  decide  which  class  could  best  be  adapted  to  his 
business.  It  is  not  necessary  to  use  each  class  in  its  entirety,  but  any  part  of  one  class  may  be  used  with 
the  other  class  according  to  the  desire  for  detail. 

CHARTS  Nos.  10,  11,  12,  13  and  14.  Chart  of  Expense  Accounts.  These  charts  set  forth  the  natural 
divisions  of  expense  as  they  apply  to  each  subdivision  of  the  functional  groups.  There  is  a  chart  for  each 
group. 

Three  (3)  classes  of  stores  have  been  provided  on  these  charts,  and  a  merchant  can  select  the  accounts 
best  adaptable  to  his  business. 

A  store  that  desires  departmental  results  will  be  able  to  compile  their  complete  chart  of  accounts  from 
these  charts. 

Class  “D”  stores  have  not  been  provided  for  on  these  charts,  as  a  store  that  desires  this  detail  can 
compile  the  desired  accounts  from  the  Class  “C”  classification. 

CHART  No.  15.  Chart  of  Expenses  ordinarily  chargeable  direct  to  Selling  Departments.  This  chart 
shows  the  accounts  which  apply  to  items  that  should  be  charged  direct  to  selling  departments  and  is  sub¬ 
sidiary  to  Charts  10,  11,  12,  13  and  14. 

In  charging  expenses  direct  to  selling  departments  the  letters  A,  0,  P,  B  and  S  should  be  prefixed  to 
the  department  number  so  that  the  five  (5)  functional  groups  of  expenses  may  be  maintained. 

CHART  No.  16.  Numerical  Classification  of  the  Natural  Divisions  of  Expense.  This  chart  shows 
in  numerical  form  the  Fourteen  (14)  Natural  Divisions  of  Expense  and  their  subdivisions,  classified  into 
three  (3)  classes  of  stores  and  so  arranged  that  whenever  greater  detail  is  desired  the  accounts  in  use  can 
be  referred  to  under  the  respective  class  of  store  and  the  expansion  in  the  classification  can  be  readily  made, 
as  the  account  numbers  in  each  class  of  stores  are  shown  opposite  each  other. 

CHART  No.  17.  Alphabetical  Classification  of  Expense  Accounts.  This  chart  or  index  affords  an 
alphabetical  reference  to  charts  10,  11,  12,  13,  14  and  15  and  includes  all  items  of  expense  which  may  or 
may  not  be  directly  mentioned  in  the  Charts  of  Expense  Accounts. 

This  chart  should  be  very  helpful  in  distributing  expenses,  when  the  account  to  which  it  may  be  appli¬ 
cable  is  in  question. 

CHART  No.  18.  Distribution  and  Proration  of  Indirect  Expenses.  This  chart  is  provided  to  show  the 
bases  of  proration  to  the  selling  departments  of  the  expenses  of  the  service  departments. 

Four  (4)  classes  of  stores  have  been  provided,  but  if  in  compiling  your  chart  of  expense  accounts  you 
have  taken  accounts  from  more  than  one  class  of  stores,  you  should  follow  the  same  plan  in  selecting  your 
bases  for  proration  of  indirect  expenses. 

CHART  No.  19.  Alteration  and  Manufacturing  “W”  Division.  The  expense  accounts  of  the 
Alteration  and  Manufacturing  departments  are  shown  by  this  chart. 

CHART  No.  22.  Source  of  Information  for  Expense  Distribution.  This  chart  is  prepared  so  as  to 
convey  the  bookkeeping  procedure,  in  connection  with  recording  of  expenses,  in  accordance  with  the 
plan  outlined  herein. 


CLASSIFICATION  AND  DISTRIBUTION  OF  EXPENSE 


28 


FLOOR  SPACE  RENTALS 

The  importance  of  establishing  a  satisfactory  degree  of  comparison  in  operating  costs  of  stores,  and 
the  relatively  high  proportion  of  such  costs  appearing  under  the  caption  of  OCCUPANCY  suggest  the 
desired  method  of  treating  particularly  upon  the  largest  item  placed  under  the  latter  heading;  namely, 
that  of  RENTALS. 

A  clear  statement  of  the  principle  of  rentals  in  relation  to  standardized  accounting  for  retail  stores 
will  serve  as  a  guide  in  its  application.  The  amount  charged  to  RENTALS  should  represent  the  amount 
paid  as  rent  for  the  properties  used  in  the  conduct  of  the  business,  or  the  occupancy  value  of  such  properties; 
the  latter  on  the  theory  that  real  estate  profits  are  quite  distinct  from  merchandising  profits.  Only  by  the 
inclusion  in  the  expenses  of  a  merchandising  business  of  rentals  on  owned  properties  used  in  that  business 
can  the  merchant  determine  the  amount  of  profits  arising  out  of  merchandising  operations. 

It  is  suggested  that  consideration  be  given  to  the  following: 

First.  The  rental  value  of  similar  properties  in  the  immediate  vicinity. 

Second.  A  proper  return  upon  the  apparent  real  estate  value  of  the  properties. 

In  cases  wherein  there  is  a  difference  between  the  values  disclosed  by  1  and  2  as  above,  it  would  in 
most  cases  be  proper  to  establish  a  figure  compromising  between  the  two,  for  the  following  reasons: 

May  represent  a  temporary  condition  due  to  extreme  business  conditions  or 
to  unusual  leasing  conditions  in  the  vicinity,  and  therefore  would  not  in  itself  be 
suitable  for  a  basis,  or  may  disclose  an  amount  at  variance  with  the  leasing 
conditions  in  the  immediate  vicinity. 

There  are,  generally  speaking,  three  classes  of  operators  as  follows: 

A.  Those  leasing  all  properties  used. 

B.  Those  owning  all  properties  used. 

C.  Those  leasing  part  and  owning  part. 

Only  classes  B  and  C,  as  above,  present  any  problem  in  determining  the  total  rentals,  and  these  only 
in  the  matter  of  the  properties  which  are  owned. 

In  some  extreme  conditions  the  amount  paid  under  a  lease  may  fail  to  represent  an  amount  even 
approximating  the  value  of  the  premises.  In  such  cases,  if  the  variation  be  of  sufficient  amount  to  justify 
the  procedure,  a  value  may  be  arrived  at  as  in  the  case  of  owned  properties,  and  the  amount  of  the  excess 
credited  to  a  special  lease  account  appearing  under  “Other  Income"  on  the  Operating  Statement. 

After  deciding  upon  the  amount  to  be  charged  to  RENTALS  for  all  properties  used,  the  next  process 
should  be  to  determine  the  relative  values  of  different  parts  of  the  properties.  In  this  connection,  con¬ 
sideration  should  be  given  to  the  following: 

A.  Value  of  the  Show  Windows. 

B.  Value  of  the  Street  Floor. 

C.  Value  of  the  Basements  and  Upper  Floors. 

D.  Relative  values  of  most  favorable  locations. 

(A)  The  floor  space  valuation  of  the  show  windows  should  be  determined  by  its  display  value,  but 
only  in  proportion  to  the  location  valuation  placed  on  the  entire  street  floor. 

The  floor  space  rental  established  is  charged  to  Rentals  02-1  under  the  Window  Department  in  the 
Publicity  group. 

(B)  The  value  of  the  street  floor  is  affected  by  the  following  considerations: 

1.  Exposure  or  frontage. 

2.  Number  and  locations  of  entrances. 

3.  Number  of  stories. 

4.  Layout  of  ground  plan. 

5.  Number  and  location  of  elevators. 


DESCRIPTIVE  TEXT 


29 


(C)  The  values  of  basements  and  upper  floors  are  more  readily  determinable  after  the  windows  and 
street  floor  have  been  assigned  a  value.  Basements  suitable  for  and  used  as  merchandising  space  should 
be  accorded  a  higher  value  than  if  used  for  non-selling  purposes.  Usually  the  floors  decrease  in  value  accord¬ 
ing  to  their  height  above  the  ground.  In  this  matter  the  adequacy  of  the  elevator  service  is  of  prime  consid¬ 
eration. 

Generally  speaking,  the  assignment  of  values  inside  the  store  building  are  arbitrary,  but  a  fair  dispo¬ 
sition  of  the  matter  may  be  made  if  due  consideration  be  given  to  all  of  the  factors.  The  particular  depart¬ 
ments  carried  bear  on  the  subject,  inasmuch  as  certain  departments  are  more  favorably  located  above 
the  street  floor. 

(D)  It  is  considered  fair  and  proper  in  many  well  regulated  stores  to  recognize  the  value  of  certain 
parts  of  floors  with  a  higher  rental  charge  than  other  spaces  not  so  favorably  situated.  These  zones  of 
higher  value  are  usually  easily  located,  and  the  matter  of  fixing  the  amount  of  variation  should  not  be 
difficult.  Departments  located  on  important  aisles  or  in  places  where  customers  congregate,  and  spaces 
close  to  elevators  are  examples. 

Argument  is  made  that  a  store  may  be  laid  out  so  that  all  departments  may  be  assigned  locations 
equally  desirable,  provided  that  in  the  plans  proper  consideration  be  given  to  the  relation  of  departments 
to  one  another.  It  is  held  that  in  every  store  there  is  an  ideal  location  for  each  department,  and  that  no 
effort  should  be  spared  in  determining  and  assigning  these  locations.  The  proponents  of  this  theory  claim 
that  there  should  be  no  difference  recognized  in  rental  value  of  space  used  in  selling,  but  that  all  area  used 
in  selling  should  be  charged  at  the  same  rate. 

As  rental  is  to  be  charged  to  selling,  alteration,  manufacturing  and  window  departments  only,  it  is 
advisable  to  establish  a  per  square  foot  rental  on  the  various  locations  and  floors,  excluding  windows,  as 
this  has  been  previously  determined,  and  after  measuring  the  spaces  occupied  by  the  selling,  alteration 
and  manufacturing  departments,  the  rental  applicable  to  each  can  be  readily  computed.  In  establishing 
the  per  square  foot  rental  charge  it  should  be  remembered  that  in  eliminating  the  service  departments, 
the  rentals  of  the  space  occupied  by  the  other  class  of  departments  must  be  increased. 

The  application  of  the  foregoing  is  more  simple  than  may  appear;  in  fact,  the  time  necessary  to  com¬ 
plete  all  of  the  calculations  and  measurements  is  found  to  be  remarkably  little  even  in  stores  of  larger  size. 
For  purposes  of  correct  comparability  the  rental  question  is  worthy  of  the  particular  attention  directed 
to  it. 

For  the  guidance  of  those  who  have  heretofore  charged  rentals  upon  some  purely  arbitrary  basis,  such 
as  sales,  attention  is  called  to  the  necessity  under  this  plan  of  providing  for  the  recording  and  adjustment 
of  departmental  changes  whenever  they  occur. 


WINDOW  RENTAL 

The  expenses  in  connection  with  the  window  display  department,  which  include  all  operating  expenses, 
inclusive  of  floor  space  rent,  as  shown  by  Chart  12,  are  chargeable  to  the  selling  departments  on  the  basis 
of  arbitrary  values  of  each  window  or  case,  according  to  display  value. 

The  arbitrary  values  of  each  window  or  case  should  be  based  upon  the  display  value  of  one  to  another, 
and  for  example  consider  a  store  that  has  five  windows,  the  best  of  which  is  arbitrarily  valued  at  $5.00 
per  day  and  the  others  based  upon  their  display  value,  as  compared  to  the  $5.00  per  day  window,  are  val¬ 
ued  at  two  at  $4.00  and  two  at  $2.00  per  day.  The  windows  were  used  by  selling  departments  during  the 
entire  thirty  days  of  the  month  as  follows: 


Department 

Window 

No.  op 

Rate 

No. 

No. 

Days 

Per  Day 

Total 

4 

1 

10 

$5.00 

$50.00 

8 

1 

8 

5.00 

40.00 

3 

1 

4 

5.00 

20.00 

1 

1 

8 

5.00 

40.00 

7 

2 

12 

4.00 

48.00 

5 

2 

9 

4.00 

36.00 

1 

2 

9 

4.00 

.  36.00 

30 


CLASSIFICATION  AND  DISTRIBUTION  OF  EXPENSE 


10  3 

8 

4.00  32.00 

9  3 

22 

4.00  88.00 

6  4 

10 

2.00  20.00 

4  4 

12 

2.00  24.00 

2  4 

8 

2.00  16.00 

8  5 

20 

2.00  40.00 

5  5 

10 

2.00  20.00 

Total . 

.  150 

$510.00 

On  the  above  basis  the  total  arbitrary  value  charged  to  selling  departments  amounted  to  $510.00, 

which  is  equivalent  to  100%,  and  accordingly  proportioned  to  selling  departments  as  follows: 

Department 

Arbitrary 

No. 

Value 

Percent 

1 

$76.00 

14.90% 

2 

16.00 

3.14% 

3 

20.00 

3.92% 

4 

74.00 

14.51% 

5 

56.00 

10.98% 

6 

20.00 

3.92% 

7 

48.00 

9.41% 

8 

80.00 

15.69% 

9 

88.00 

17.26% 

10 

32.00 

6.27% 

$510.00 

100.00% 

The  percentages  opposite  each  department  designate  the  portion  of  time  that  they  used  the  window 

space,  based  upon  the  arbitrary  display  values  of  the  windows  to  each  other.  The  percentage  having  been 
determined,  the  next  procedure  is  to  distribute  the  total  expenses  of  the  window  department  to  the  selling 
departments,  and  the  following  example  is  offered,  considering  that  the  total  expense  actually  incurred 

amounted  to  $400.00. 

Department 

Percent 

No. 

Used 

Total 

1 

14.90% 

$59.60 

2 

3.14% 

12.56 

3 

3.92% 

15.68 

4 

14.51% 

58.04 

5 

10.98% 

43.92 

6 

3.92% 

15.68 

7 

9.41% 

37.64 

8 

15.69% 

62.76 

9 

17.26% 

69.04 

10 

6.27% 

25  08 

100.00% 

$400.00 

If  the  window  rentals  are  handled  in  accordance  with  the  above  plan,  no  loss  or  profit  will  accrue  to 
the  business,  as  the  actual  expenses  incurred  will  be  charged  to  the  selling  departments. 


ALTERATION  AND  MANUFACTURING  DEPARTMENTS 

In  the  operation  of  these  departments,  in  accordance  with  the  plan  suggested  herein,  which  provides 
that  they  operate  on  aii  actual  cost  basis  and  that  no  profit  or  loss  accrue  to  them,  the  following  procedure 
is  suggested: 


DESCRIPTIVE  TEXT 


31 


ALTERATION  DEPARTMENTS 


In  the  case  where  these  departments  work  exclusive  for  one  selling  department  the  procedure  is  simple, 
as  all  expenses  actually  incurred  are  charged  to  Alteration  Coste  under  the  caption  '‘Cost  of  Sales”  of  the 
respective  selling  department,  in  the  departmental  record,  and  in  the  general  ledger  to  one  account  com¬ 
prising  all  departments. 

Where  an  alteration  department  does  work  for  more  than  one  selling  department  it  is  necessary  to 
maintain  a  cost  record,  either  actual  costs  as  near  as  same  can  be  determined,  or  estimated  costs,  which 
can  be  established  for  a  period  on  each  class  or  kind  of  alterations.  Records  should  be  kept  by  the  alter¬ 
ation  departments  covering  the  work  done  for  each  selling  department,  based  upon  the  cost  of  each  alter¬ 
ation  made  and  the  total  amount  applicable  to  each  selling  department  computed  in  percentage,  as  its 
ratio  in  percent  bears  to  the  grand  total  of  all  costs  completed  during  the  period  by  the  alteration  department. 

The  total  of  the  expenses  of  the  alteration  department  can  be  transferred  to  the  respective  selling 
departments,  apportioned  on  the  basis  of  the  percentages. 

The  inventory  of  material  and  supplies  should  be  taken  at  the  end  of  each  month  or  period,  if  the 
actual  expenses  are  desired. 

The  charges  made  to  customers  for  alterations,  which  are  termed  “Alteration  Sales,”  are  to  be  include 
in  the  selling  department’s  sales  (but  are  to  be  excluded  in  computing  the  retail  inventory  of  the  selling 
department),  as  the  selling  department  will  be  charged  with  all  alterations  made  and  is  therefore  entitled 
to  the  income  from  this  source. 


MANUFACTURING  DEPARTMENTS 

The  manufacturing  departments  should  be  operated  on  a  cost  to  manufacture  basis.  In  order  to  accu¬ 
rately  determine  the  results  of  manufacturing  it  is  necessary  to  devise  a  cost  system,  so  that  all  completed 
product  manufactured  can  be  transferred  to  the  selling  departments,  either  retail  or  jobbing,  at_costi  in 
transferring  to  retail  selling  d e p a r t m e n ts,' tUyou "are"  on  the  retail  method,  the  transfers  can  be  retailed 
the  same~as~purchases  made  through  outside  sources. 

All  expenses  in  connection  with  the  manufacturing  departments  should  be  charged  to  their  inventory 
as  all  costs,  as  computed,  should  include  material,  labor  and  overhead  expense. 

An  inventory  of  all  material,  supplies,  work  in  process  and  completed  product,  not  transferred,  should 
be  taken  periodically,  and  the  difference  determined  between  actual  and  book  inventories  adjusted  by 
transfer  to  the  selling  departments,  that  received  their  product  during  the  period.  The  accuracy  of  the  cost 
records,  which  are  a  basis  of  your  selling  price,  can  be  ascertained. 

In  compiling  this  report  no  provision  has  been  made  for  forms  in  connection  with  the  books  themselves 
or  departmental  records,  as  this  was  considered  a  separate  task  for  later  procedure. 


PART  IV 


CLASSIFICATION  OF  MERCHANDISE 


The  application  of  the  Standardization  plan  to  merchandise  classification  follows  in  a  general  way  the 
principles  of  the  expense  plan. 

While  differences  in  physical  layout  and  personnel  organization  occasion  somewhat  varying  merchandise 
groupings  in  different  stores,  there  are,  nevertheless,  certain  natural  tendencies  in  the  development  of  a 
logical  merchandise  classification.  These  tendencies  have  been  followed  as  closely  as  possible  in  the  plan. 

Comparison  between  store  merchandise  operations  by  departments  requires  that  there  shall  be  similar 
departmental  grouping  of  merchandise.  Without  this  the  final  results  when  compared  may  disclose  dif¬ 
ferences  which,  while  they  appear  to  be  brought  about  by  merchandise  policies  and  methods,  may  be  largely 
due  to  varying  tendencies  introduced  by  dissimilar  groupings. 

The  accompanying  merchandise  classification  chart  presents  the  schedules  as  they  may  be  adopted 
according  to  existing  requirements  and  future  developement  of  the  individual  store.  It  provides  for  the 
trade  a  standard  plan  which,  when  adopted,  together  with  the  expense  classification,  will  bring  about  final 
profit  and  loss  figures  by  departments  which  will  serve  as  a  satisfactory  basis  for  comparison  of  operations. 

It  is  not  intended  that  the  schedules  of  either  merchandise  or  expense  need  be  selected  with  regard  to 
each  other.  For  example,  a  store  desiring  a  larger  departmental  classification  of  merchandise  need  not  change 
the  existing  expense  classification  unless  this  is  desired.  The  general  principles  of  standardization  are  served 
if  consistency  is  observed  in  the  adoption  of  either  merchandise  or  expense  as  a  unit  of  the  plan. 


32 


PART  V 


BALANCE  SHEET  ACCOUNTS 

BOOKKEEPING  PROCEDURE 

The  explanatory  detail  appearing  under  this  caption  is  to  assist  the  bookkeeper  in  making  the  book 
entries.  It  is  advisable  to  have  the  general  ledger  divided  in  a  manner  so  that  the  financial  statements 
can  be  readily  prepared  from  the  Trial  Balance.  Chart  number  twenty-one  included  in  Volume  II  will 
assist  you  in  devising  your  general  ledger,  as  well  as  furnish  information  as  to  the  source  of  entries  and 
the  ultimate  results. 

ASSETS 

Cash  on  Hand 

Debit  with:  Credit  with: 

(1) — Total  amount  of  cash  received.  (1) — Total  amount  of  cash  deposited. 

Balance — Represents  the  undeposited  cash  on  hand. 


Cashiers’  Funds 

Credit  with: 

(1) — If  the  fund  be  decreased,  credit  this 
account  with  the  amount  by  which  it  is 
diminished. 

Represents  the  amount  of  the  fund  which  is  set  aside  to  meet  currency  disburse¬ 
ments  and  supply  store  cashiers. 


Debit  with: 

(1) — Amount  of  fund  created  to  meet  currency 

disbursements. 

(2)  — Increases  in  the  fund  originally  created. 

Balance 


Cash  on 

Debit  with: 

(1)  — Total  amount  of  cash  deposited. 

(2)  — Collections  made  by  the  bank. 

(3)  — Interest  earned  on  bank  balances. 

Balance — Represents  the  available  balance  i 


Deposit 

Credit  with  : 

(1)  — Total  amount  of  checks  issued. 

(2)  — Exchange  and  other  collection  charges 

made  by  the  bank. 

(3)  — Other  proper  bank  charges. 
l  the  banks. 


Notes  Receivable 


Debit  with: 

(1) — Face  value  of  notes  received  of  customers 
in  the  usual  course  of  business. 


Credit  with: 

(1) — Face  value  of  notes  of  customers  paid, 
discounted  or  otherwise  disposed  of. 


Balance — Represents  the  face  value  of  notes  on  hand.  (If  the  Notes  Receivable  Dis¬ 
counted  account  be  used,  the  balance  of  this  account,  less  the  balance  of  the 
Notes  Receivable  Discounted  account,  will  represent  the  notes  on  hand.  Notes 
that  have  been  proven  uncollectible  should  be  written  off). 


Accrued  Interest 

Debit  with:  Credit  with: 

(1) — Amount,  of  interest  accrued  on  notes  (1) — Interest  received  on  notes  receivable, 

receivable  on  hand. 

Balance — Represents  the  amount  of  interest  earned  on  notes  receivable,  unpaid. 


33 


34 


BALANCE  SHEET  ACCOUNTS 


Reserve  for  Possible  Losses  on  Customers’  Notes 


Debit  with: 

(1) — All  losses  sustained  on  account  of  cus¬ 
tomers’  notes  receivable. 


Credit  with: 

(1) — Estimated  amount  of  losses  on  custom¬ 
ers’  notes  receivable  sustained  during  an 
accounting  period. 


Balance — Represents  the  available  reserve  for  losses. 


Accounts  Receivable — Charge  Accounts 


Debit  with: 

(1)  — Total  charge  sales. 

(2)  — Freight,  expressage  and  parcel  post  charge¬ 

able  to  customers. 

(3)  — Transfers  from  C.  0.  D.,  Layaway  and 

Installment  accounts,  when  changed  to 
open  accounts. 


Credit  with: 

(1)  — All  moneys  received  from  customers  to 

apply  on  account,  plus  the  discounts 
allowed. 

(2)  — Allowances  to  customers  for  goods 

returned  and  claims  allowed. 

(3)  — Uncollectible  accounts  written  off. 

(4)  — Transfers  to  C.  0.  D.,  Layaway  and 

Installment  accounts,  when  changed  from 
open  accounts. 


Balance — Represents  the  amount  due  and  collectible  from  customers,  and  should  agree 
with  the  results  of  trial  balance  compiled  from  the  customers  ledgers. 


Accounts  Receivable — C.  O.  D.  Accounts 


Debit  with: 

(1)  — Total  C.  0.  D.  sales. 

(2)  — Freight,  expressage  and  parcel  post 

chargeable  to  customers. 

(3)  — Transfers  from  Charge,  Layaway  and 

Installment  accounts,  when  charged  to 
C.  0.  D.  accounts. 


Credit  with: 

(1)  — All  moneys  received  from  customers  to 

apply  on  C.  0.  D.  accounts,  plus  the  dis¬ 
counts  allowed. 

(2)  — Allowances  to  customers  for  goods  re¬ 

turned  and  claims  allowed. 

(3)  — Uncollectible  accounts  written  off. 

(4)  — Transfers  to  Charge,  Layaway  and  In¬ 

stallment  accounts,  when  changed  from 
C.  0.  D.  accounts. 


Balance — Represents  the  amount  due  from  customers,  and  should  agree  with  the  results 
of  a  trial  balance  compiled  from  the  C.  0.  D.  ledgers. 


Debit  with: 


Accounts  Receivable — Will-Call  or  Layaway  Accounts 

Credit  with: 


(1)  — Total  Will-Call  or  Layaway  Sales. 

(2)  — Freight,  expressage  and  parcel  post  charge¬ 

able  to  customers. 

(3)  — Transfers  from  Charge,  C.  0.  D.  and 

Installment  accounts  when  transferred  to 
Layaway  accounts. 


(1)  — All  moneys  received  from  customers  to 

apply  on  Will-Call,  or  Layaway  accounts, 
including  discounts. 

(2)  — Allowances  to  customers  for  goods  re¬ 

turned  and  claims  allowed. 

(3)  — Uncollectible  accounts  written  off. 

(4)  — Transfers  to  Charge,  C.  0.  D.  and  In¬ 

stallment  accounts,  when  changed  from 
Will-Call  or  Layaway  accounts. 


Balance — Represents  the  amount  due  from  customers,  and  should  agree  with  the  results 
of  a  trial  balance  compiled  from  the  Will-Call  or  Layaway  ledgers. 


BOOKKEEPING  PROCEDURE 


35 


Accounts  Receivable — Installment  Accounts 


Debit  with: 

(1)  — Total  installment  sales. 

(2)  — Freight,  expressage  and  parcel  post  charge¬ 

able  to  customers. 

(3)  — Transfers  from  Charge,  C.  0.  D.,  and  Lay¬ 

away  accounts,  when  transferred  to  In¬ 
stallment  accounts. 

(4)  — Interest  charged  on  Installment  accounts. 


Credit  with: 

(1)  — All  moneys  received  from  customers  to 

apply  on  account,  plus  discounts  allowed. 

(2)  — Allowances  to  customers  for  goods  re¬ 

turned  and  claims  allowed. 

(3)  — Uncollectible  accounts  written  off. 

(4)  — Transfers  to  Charge,  C.  0.  D.  and  Lay¬ 

away  or  Will-Call  accounts,  when  changed 
from  Installment  accounts. 


Balance — Represents  the  amount  due  from  customers,  and  should  agree  with  the  results 
of  a  trial  balance  compiled  from  the  Installment  ledgers. 


Debit  wtith  : 

(1)— All  losses  sustained  on  account  of  cus¬ 
tomers’  accounts  receivable. 


Reserve  for  Possible  Losses  on  Customers’  Accounts 

Credit  with: 


CD- 


Estimated  amount  of  losses  on  customers’ 
accounts  receivable  sustained  during  ac¬ 
counting  period. 

Balance — Represents  the  available  reserve  for  losses. 


Merchandise  on  Hand — Inventory 


Debit  with: 

(1)  — Value  of  merchandise  on  hand  at  begin¬ 

ning  of  the  period. 

(2)  — Cost  of  all  merchandise  received. 

(3)  — Freight,  expressage  and  parcel  post,  in¬ 

cluding  cartage,  on  merchandise  pur¬ 
chases. 


Credit  with: 

(1)  — Cost  of  merchandise  sold. 

(2)  — Cost  of  merchandise  returned  to  vendors, 

and  allowances  made. 


Balance — Represents  the  value  of  merchandise  on  hand  at  the  end  of  the  period. 

Note:  Divergence  from  this  practice  is  noted  in  the  fact  that  some  accountants  prefer  to  maintain 
the  following  separate  accounts: 

Inventory  at  the  beginning  of  period  (To  remain  unchanged  during  the  period). 

Purchase  Account  (To  which  Debit  items  No.  2  and  3,  and  Credit  items  No.  1  and  2,  shown  above, 
apply). 


Manufacturing  Inventory 


Debit  with: 


Credit  with: 


(1)  — Amount  of  Material  purchased. 

(2)  — Amount  of  Labor  and  Expenses  incurred 

in  manufacturing. 


(1) — Amount  of  Merchandise  manufactured  and 
transferred  at  cost  to  Selling  Depart¬ 
ments. 

Balance — Represents  amount  of  Material  and  Goods  in  Process  not  having  been  transferred  to 
the  Selling  Departments. 

Note:  This  forms  a  part  of  the  Inventory  of  Merchandise  on  Hand  account  on  the  Balance 
Sheet,  but  to  be  kept  separate  on  the  ledger. 


Debit  with  : 

(1) — Moneys  advanced  on  contracts  for  the 
purchase  of  merchandise. 


Advances  on  Merchandise  Purchases 

Credit  with: 


Balance 


(1) — Amount  of  advances  on  shipments  made, 
transferring  the  charge  to  “Inventory  of 
Merchandise  on  Hand”  account. 
Represents  amount  of  money  advanced  on  purchase  contracts. 


36 


BALANCE  SHEET  ACCOUNTS 


United  States  Bonds 


Debit  with: 

(1) — Cost  of  bonds  purchased. 


Credit  with: 

(1) — Cost  of  bonds  disposed  of.  The  difference 
between  the  cost  and  selling  price  should 
be  charged  or  credited  to  “Other  Income” 
account. 


Balance — Represents  the  cost  of  bonds  on  hand. 

Note:  If  the  number  of  transactions  in  U.  S.  Bonds  be  large,  this  account,  as  designed,  will  be  en¬ 
tirely  inadequate,  for  the  reason  that  when  large  numbers  of  bonds  are  charged  to  this  account  at  cost  it 
becomes  very  difficult  to  reconcile  the  balance  shown  by  the  account  with  the  actual  count  of  the  bonds 
on  hand,  each  bond  probably  having  been  taken  into  the  account  at  a  different  cost,  while  the  bond  bears 
only  the  par  value.  This  complication  arises  also  in  the  event  of  sale  when  it  becomes  necessary  to  deter¬ 
mine  the  profit  or  loss  on  the  sale.  It  is,  therefore,  recommended  that  each  bond  be  entered  separately, 
identified  by  serial  number,  and  that  the  actual  count  be  made  according  to  the  serial  numbers  of  the  bonds, 
and  not  the  face  or  par  value;  or  that  the  cost  of  each  bond  be  written  on  the  bond;  or,  preferably,  that 
the  bonds  be  charged  and  credited  to  this  account  at  face  value  and  not  at  cost,  the  difference  being  credited 
or  charged  to  an  account  termed  “Reserve  for  Discount  on  U.  S.  Bonds.” 


Certificates  of  Indebtedness 


Debit  with: 

(1) — Cost  of  certificates  of  indebtedness  pur¬ 
chased. 

Balance — Represents  the  cost  of  certificates 


(1) — Cost  of  certificates  of  indebtedness  dis¬ 
posed  of.  The  difference  between  the 
cost  and  selling  price  should  be  charged 
or  credited  to  “Other  Income”  account, 
of  indebtedness  on  hand. 


Accrued  Interest 


U.  S.  Bonds  and  Certificates  of  Indebtedness 


Debit  with: 

(1)  — Amount  of  interest  accrued  on  U.  S. 

Bonds. 

(2)  — Amount  of  interest  accrued  on  certifi¬ 

cates  of  indebtedness. 


Credit  with  : 

(1)  — Interest  received  on  U.  S.  Bonds. 

(2)  — Interest  received  on  certificates  of  in¬ 

debtedness. 


Balance — Represents  the  amount  of  interest  earned  but  unpaid. 


Debit  with: 

(1) — Cost  of  War  Saving  Stamps  purchased 


Balance- 


War  Savings  Stamps 

Credit  with: 

(1) — Cost  of  War  Saving  Stamps  disposed  of. 
The  difference  between  the  cost  and  sel¬ 
ling  price,  representing  interest,  should  be 
credited  to  “Other  Income”  account. 
Represents  the  cost  of  War  Savings  Stamps  on  hand. 


Reserve  for  Possible  Losses  on  U.  S.  Securities 


Debit  with: 

(1) — All  losses  sustained  on  U.  S.  securities. 


Credit  with: 

(1) — Estimated  amount  of  losses  on  U.  S.  se¬ 
curities  sustained  during  the  accounting 
period. 


Balance — Represents  the  available  reserve  for  losses. 


BOOKKEEPING  PROCEDURE 


37 


Securities  Owned — Other  Corporations 


Debit  with: 

(1) — Cost  of  securities  of  other  corporations 
purchased. 


Credit  with: 

(1) — Cost  of  securities  of  other  corporations  dis¬ 
posed  of.  The  difference  between  the 
cost  and  selling  price  should  be  charged  or 
credited  to  “Other  Income”  account. 


Balance — Represents  the  cost  of  securities  of  other  corporations  on  hand. 


Notes  Receivable — Non-Current 


Debit  with 

(1) — Face  value  of  notes  received  other  than 
from  customers. 


Credit  with: 

(1) — Face  value  of  non-current  notes  paid, 
discounted  or  otherwise  disposed  of.  (See 
note  above  under  “Notes  Receivable.”) 


Balance — Represents  the  face  value  of  non-current  notes  on  hand. 


Accrued  Interest 


Debit  with: 

(1) — Amount  of  interest  accrued  on  non-current 
notes  receivable. 


Credit  with: 

(1) — Interest  received  on  non-current  notes 
receivable. 


Balance — Represents  the  amount  of  interest  earned  but  unpaid. 


Insurance  Deposits 


Debit  with: 

(1) — Credits  in  the  hands  of  mutual  insurance 
agencies. 


Credit  with: 

(1) — Withdrawal  of  funds. 


Balance — Represents  funds  on  deposit  with  mutual  insurance  agencies. 


Cash  Surrender  Value  of  Life  Insurance  Policies 

Credit  with: 


Debit  with: 

(1) — That  portion  of  the  premium  paid  equal 
to  the  increase  in  the  cash  surrender  value 
of  the  policy  as  compared  with  the  value 
at  the  time  of  the  previous  premium  pay¬ 
ment. 

Balance — Represents  cash  surrender  value  of  life  insurance  policies 


(1) — Cash  received  at  the  maturity  or  surrender 
of  the  policy. 


Debit  with: 

(1) — Amount  of  claims  made  against  common 
carriers  for  loss  or  damage  in  transporta¬ 
tion. 


Common  Carrier  Claims 

(An  Account  with  each  Transportation  Company) 

Credit  with: 

(1)  — Amount  of  claims  cancelled  or  reduced. 

(2)  — Amount  of  claims  paid. 


Balance — Represents  amount  of  claims  due  from  common  carriers. 


38 


BALANCE  SHEET  ACCOUNTS 


Land  and  Buildings — 

Debit  with: 

(1)  — Cost  of  land  and  buildings  purchased. 

(2)  — Carrying  charges  on  non-income  produc¬ 

ing  lands. 

(3)  Cost  of  additions  to  buildings. 

Balance — Represents  value  of  investments 
ation  of  the  business. 

Vot  used  in  Operations 

Credit  with: 

(1)  — Cost  value  of  land  and  buildings  appro¬ 

priated  for  operating  purposes. 

(2)  — Amount  realized  from  sales. 

in  land  and  buildings  not  used  in  the  oper- 

Personal  Accounts — Officers, 

TDebiTxwith: 

(1) — Total  charges  to  officers,  stockholders  and 
employees. 

Balance — Represents  the  amount  due,  and 
ance  compiled  from  the  ledgers. 

Stockholders  and  Employees 

Credit  with: 

(1)  — All  moneys  received  from  and  other  credits 

to  officers,  stockholders  and  employees, 
including  discounts. 

(2)  — Uncollectible  accounts  written  off. 
should  agree  with  the  results  of  a  trial  bal- 

Unexpired  In  suj 

Debit  with: 

(1) — Insurance  premiums  paid. 

Balance — Represents  the  cost  of  insurance 

ranee  Premiums 

Credit  with: 

(1) — The  amount  of  premiums  accrued, 
unexpired. 

Prepaid  Interest 

Debit  with: 

(1) — Interest  paid  in  advance. 

Balance — Represents  the  amount  of  prepaid 
Note:  For  balance  sheet  purposes,  include  und 

on  Notes  Payable 

Credit  with: 

(1) — Amount  of  interest  accrued, 
interest  on  notes, 
er  “Prepaid  Expenses/’ 

Supply  I 

Debit  with: 

(1) — Cost  of  supplies  purchased  in  large  quan¬ 
tities. 

Balance — Represents  the  cost  of  supplies  o 
Note:  Supplies  purchased  in  small  quantities  s 
account. 

nventory 

Credit  with  : 

(1) — Cost  of  supplies  used  during  the  period. 

n  hand. 

lould  be  charged  directly  to  the  appropriate  expense 

Debit  with: 


Prepaid  Expenses 

Credit  with: 


(1) — Expenditures  made  for  expenses  that  may 
be  spread  over  a  period  of  time,  or  with 
any  debit  made  for  any  other  reason  that 
may  be  amortized  through  charges  made 
to  expense  or  other  income  accounts  at 
intervals  over  a  period  of  time.  An  appro¬ 
priate  account  to  be  opened  with  each 
such  expenditure,  loss  or  debit. 

Balance — Represents  the  amount  of  prepaid 


(1) — The  pro-rata  proportion  chargeable  to 
expense  or  other  income  account. 


expenses. 


BOOKKEEPING  PROCEDURE 


39 


Organization  Expenses 

Debit  with:  Credit  with: 

(1) — Cost  of  organizing  and  preparing  an  (1) — Pro-rated  amount  for  the  period, 

enterprise  to  do  business  and  produce 
income. 

Balance — Represents  the  unmatured  balance  of  organization  expenses. 


Land 

Debit  with: 

(1)  — The  purchase  contract  price  of  the  land. 

(2)  — Cost  of  surveying,  title  insurance,  record¬ 

ing  fees,  broker’s  commission,  taxes  owing 
at  date  of  purchase. 

(3)  — Cost  of  local  improvement  taxes  and 

assessments. 

(4)  — Cost  of  carrying  charges  until  buildings 

are  erected. 

Balance — Represents  the  cost  value  of  land  owned 


Credit  with: 

(1) — Cost  of  land  sold. 


1/ 


/ 


Debit  with: 

(1)  — Cost  of  leasehold. 

(2)  — Cost  of  improvements  to  and  betterments 

on  leased  buildings. 


Leasehold  and  Improvements  to  Leased  Buildings 

Credit  with: 


(1)  — Cost  of  leasehold  at  the  expiration  of  the 
lease. 

(2)  — Cost  of  improvements  and  betterments  at 
the  expiration  of  the  lease. 

Balance — Represents  the  cost  value  of  leasehold  and  improvements  to  leased  buildings. 


Reserve  for  the  Amortization  of  Leasehold 

Credit  with: 


(1) — A  periodical  allowance  spread  over  the  life 
of  the  lease. 


Debit  with: 

(1)  — Cost  of  leasehold  at  its  expiration. 

(2)  — Cost  of  improvements  and  betterments  at 

the  expiration  of  the  lease. 

Balance — Represents  the  reserve  for  amortization  of  leasehold  and  improvements  to  leased 
buildings. 


Debit  with: 


Buildings 

Credit  with: 


(1)  — Actual  cost  of  buildings  purchased  or  (1) — Cost  of  buildings  abandoned,  destroyed, 

constructed.  replaced  or  sold. 

(2)  — Improvements  and  additions. 

(3)  — Cost  of  replacing  buildings,  or  material 

parts  thereof,  destroyed  by  fire,  wear,  tear, 
etc. 

Balance — Represents  the  cost  value  of  buildings  owned. 

Note:  Improvements  include  the  enlargement  or  improvement  of  existing  structures. 

Additions  include  additional  structures  not  taking  the  place  of  anything  previously  existing. 
Replacement  is  either  the  re-erection  of  an  entire  structure,  or  the  construction  of  some  specific  and 
material  portion  of  it,  such  as  a  new  roof. 

Repairs  are  chargeable  to  “Occupancy”  expense  or  to  “Other  Income.” 


40 


BALANCE  SHEET  ACCOUNTS 


Reserve  for  Depreciation  of  Buildings 

Debit  with:  Credit  with: 

(1) — Amount  of  depreciation  taken  on  articles  (1) — A  periodical  allowance  for  depreciation, 

discarded,  destroyed  or  sold. 

Balance — Represents  the  reserve  for  depreciation  of  buildings. 


Machinery  and  Equipment 


Debit  with: 

(1)  — Cost  of  machinery  and  equipment  pur¬ 

chased,  and  installation  thereof. 

(2)  — Cost  of  additions  or  alterations,  provided 

original  efficiency  is  thereby  increased. 

(3)  — Cost  of  replacing  any  article  previously 

charged  to  this  account. 

(4)  — Improvements  and  additions. 


Credit  with: 

(1) — Cost  of  machinery  and  equipment  dis¬ 
carded,  destroyed  or  sold. 


Balance — Represents  cost  value  of  machinery  and  equipment  on  hand. 


Debit  with: 

(1) — Amount  of  depreciation  taken  on  articles 


Reserve  for  Depreciation  of  Machinery  and  Equipment 

Credit  with: 


(1) — A  periodical  allowance  for  depreciation. 


discarded  or  sold. 

Balance — Represents  the  reserve  for  depreciation  of  machinery  and  equipment. 


Store  Furniture  and  Fixtures 

Credit  with: 


(1) — Cost  of  articles  discarded,  destroyed  or 
sold. 


Debit  with: 

(1)  — Cost  of  store  furniture  and  fixtures  pur¬ 

chased. 

(2)  — Cost  of  replacing  any  article  previously 

charged  to  this  account. 

(3)  — Improvements  and  additions. 

Balance — Represents  the  cost  value  of  store  furniture  and  fixtures  on  hand. 


Reserve  for  Depreciation  of  Store  Furniture  and  Fixtures 

Credit  with: 


(1) — A  periodical  allowance  for  depreciation. 


Debit  with: 

(1) — Amount  of  depreciation  taken  on  articles 
discarded,  destroyed  or  sold. 

Balance — Represents  the  reserve  for  depreciation  of  store  furniture  and  fixtures. 


Office  Furniture  and  Equipment 


Debit  with: 

(1)  — Cost  of  office  furniture  and  equipment 

purchased. 

(2)  — Cost  of  replacing  articles  previously 

charged  to  this  account. 

(3)  — Improvements  and  additions. 


Credit  with: 

(1) — Cost  of  articles  discarded,  destroyed  or 
sold. 


Balance — Represents  the  cost  value  of  office  furniture  and  equipment  on  hand. 


BOOKKEEPING  PROCEDURE 


41 


Reserve  for  Depreciation  of  Office  Furniture  and  Equipment 

Debit  with:  Credit  with: 


(1) — Amount  of  depreciation  taken  on  articles 

(1) — A  periodical  allowance  for  depreciation. 

discarded,  destroyed  or  sold. 

Balance — Represents  the  reserve  for  depreciation  of  office  furniture  and  equipment. 


Delivery  Equipment 

Debit  with:  Credit  with: 


(1)  — Cost  of  all  substantial  property,  direct  or 

auxiliary,  used  in  connection  with  the 
delivery  of  goods,  both  inward  and  out¬ 
ward. 

(2)  — Cost  of  replacing  articles  previously 

charged  to  this  account. 

(1) — Cost  of  articles  discarded,  destroyed  or 
sold. 

(3) — Improvements  and  additions. 

Balance — Represents  cost  value  of  delivery  equipment  on  hand. 


Reserve  for  Depreciation  of  Delivery  Equipment 

Debit  with:  Credit  with: 


(1) — Amount  of  depreciation  taken  on  articles 

(1) — A  periodical  allowance  for  depreciation. 

discarded,  destroyed  or  sold. 

Balance — Represents  the  reserve  for  depreciation  of  delivery  equipment. 


Good  Will,  Patents  and  Trademarks 

Debit  with:  Credit  with: 


(1) — Cost  of  good  will,  patent  rights  and 
trademarks  acquired. 

(1)  — Cost  of  good  will  written  off. 

(2)  — Cost  of  patent  rights  expiring,  or  a 

periodical  allowance  for  amortization. 

(3)  — Cost  of  trademark  becoming  worthless, 

or  a  periodical  allowance  for  amortization. 
Balance — Represents  the  cost  value  of  good  will,  patents  and  trademarks. 


42 


BALANCE  SHEET  ACCOUNTS 


LIABILITIES 


Notes  Payable 

For  Money  Borrowed  from  Banks 

Debit  with:  Credit  with: 

(1) — The  face  value  of  all  notes  redeemed.  (1) — Face  value  of  notes  issued  to  banks,  bank¬ 

ers  or  trust  companies. 

Balance — Represents  the  face  value  of  notes  outstanding  due  banks. 


Notes  Payable 

For  Money  Borrowed  Through  Brokers 

Debit  with:  Credit  with: 

(1) — The  face  value  of  all  notes  redeemed.  (1) — The  face  value  of  notes  issued  for  money 

borrowed  through  brokers. 

Balance — Represents  the  face  value  of  notes  outstanding  for  money  borrowed  through 
brokers. 


Debit  with: 

(1) — The  face  value  of  all  notes  redeemed. 


Notes  Payable 

For  Money  Borrowed  from  Officers 

Credit  with: 


(1) — Face  value  of  notes  issued  to  officers. 


Balance — Represents  the  face  value  of  notes  outstanding  due  officers. 


Debit  with: 

(1) — The  face  value  of  all  notes  redeemed. 


Notes  Payable 

For  Money  Borrowed  from  others 

Credit  with: 

Face  value  of  notes  issued  to  others. 


(D- 


Balance — Represents  the  face  value  of  notes  outstanding  due  others. 


Notes  Payable 
For  Purchases 


Debit  with: 

(1) — The  face  value  of  all  notes  redeemed. 


Credit  with: 

(1) — Face  value  of  notes  issued  to  vendors. 


Balance — Represents  the  face  value  of  notes  outstanding  due  vendors. 


Trade  Acceptances  Payable 


Debit  with: 

(1) — The  face  value  of  all  trade  acceptances 
redeemed. 


Credit  with: 

(1) — The  face  value  of  trade  acceptances  given  _ 


Balance — Represents  the  face  value  of  trade  acceptances  outstanding. 


BOOKKEEPING  PROCEDURE 


43 


Accounts  Payable  for  Merchandise  and  Expense  Purchases 
Debit  with:  Credit  with: 

(1)  — Amounts  allowed  by  vendors  for  goods  (1) — The  face  value  of  all  purchase  invoices. 

returned  and  other  allowances  made. 

(2)  — Freight  and  express  chargeable  to  vendors. 

(3)  — All  moneys  paid  to  vendors  to  apply  on 

account,  including  discounts. 

(4)  — The  face  value  of  notes  and  trade  accept¬ 

ances  given  vendors. 

Balance — Represents  the  amount  owing  to  vendors  for  purchases,  and  should  agree 
with  the  results  of  a  trial  balance  compiled  from  the  creditors’  ledgers. 


Accounts  Payable  for  Federal  Sales  Taxes 


Debit  with: 

(1) — All  moneys  paid  to  the  U.  S.  Collector  of 
Internal  Revenue,  including  penalties  and 
interest. 


Credit  with: 

(1)  — The  amounts  due  as  Excise  Taxes. 

(2)  — Penalties  and  interest  assessed,  if  any. 


Balance — Represents  the  amount  of  unpaid  federal  sales  taxes. 


Debit  with: 

(1) — The  face  value  of  all  cash  sale  refund 
credits  redeemed. 


Accounts  Payable 
For  Unredeemed  Cash  Refunds 

Credit  with: 

(1) — The  face  value  of  all  cash  sale  refund 


credits  issued  to  customers. 


Balance — Represents  the  face  value  of  cash  sale  refund  credits  outstanding. 


Accounts  Payable  for  Unredeemed  Gift  Certificates 


Debit  with: 

(1) — The  face  value  of  all  gift  certificates 
redeemed. 


Credit  with: 

(1) — The  face  value  of  all  gift  certificates 
issued. 


Balance — Represents  the  face  value  of  gift  certificates  outstanding. 


Accounts  Payable — Leased  Section  Accounts 

Credit  with: 


(1)  — All  moneys  paid  lessee  on  account  of 

contract. 

(2)  — Expenses  chargeable  to  lessee. 


(1) — The  amount  of  net  profit,  or  percentage  of 
net  sales,  due  lessee  per  contract. 


Balance — Represents  the  amount  owing  lessee. 

Note:  It  is  recommended  that  a  separate  account  be  kept  with  each  lessee. 


Accounts  Payable — Personal  Accounts 


Debit  with: 

(1)  — All  cash  withdrawal  of  funds  on  deposit 

or  credits. 

(2)  — Other  chargeable  items. 

Balance — Represents  the  amount  owing 


Credit  with: 

(1)  — Salary  credits  or  deposits  made. 

(2)  — Other  credit  items. 

on  personal  accounts. 


44 


BALANCE  SHEET  ACCOUNTS 


Accrued  Taxes — Real  and  Personal 

Debit  with:  Credit  with: 

(1) — Amount  of  tax  bills  when  paid.  (1) — Estimated  proportion  of  taxes  for  the 

period. 

Balance — Represents  the  amount  of  estimated  taxes  accrued,  but  not  due. 


Debit  with: 

(1)  — All  moneys  paid  for  salaries  and  wages. 

(2)  — Amounts  chargeable  to  employees  for 

other  purposes. 

Balance — Represents  the  amount  of  wages  accrued,  but  not  due 


Accrued  Pay  Roll 

Credit  with: 

(1) — Cost  of  labor  and  fixed  salaries  and  wages 
for  the  period. 


Accrued  Interest  on  Notes  Payable 

Debit  with:  Credit  with: 

(1) — The  amount  of  interest  paid.  (1) — The  amount  of  interest  accrued  for  the 

period. 

Balance — Represents  the  amount  of  interest  accrued,  but  not  due. 


Debit  with: 

(1) — Amount  of  rent  when  paid. 


Accrued  Rent 

Credit  with: 

(1) — A  periodical  proportion  of  rent  accrued. 


Balance — Represents  the  amount  of  rent  accrued,  but  not  due. 


Accrued  Expenses 

Credit  with: 

(1) — Amount  of  unpaid  expenses  at  close  of 
accounting  period. 


Debit  with: 

(1)  — All  moneys  paid  on  account  of  such  ex¬ 

penses,  including  discounts. 

(2)  — Allowances  and  other  deductions  from 

such  expenses. 

Balance — Represents  the  amount  of  expenses  accrued,  but  not  due. 


Funded  Indebtedness — Mortgages 

Credit  with: 

(1) — The  principal  sum  of  each  mortgage 
given. 

Balance — Represents  the  amount  owing  on  account  of  the  principal  of  mortgages  given. 


Debit  with: 

(1) — Payments  on  account  of  the  principal 


Debit  with: 

(1) — The  amount  of  bonds  retired. 


Funded  Indebtedness — Bonds 

Credit  with: 

(1) — The  amount  of  bonds  issued. 


Balance — Represents  the  amount  of  bonds  outstanding. 


BOOKKEEPING  PROCEDURE 


45 


Reserved  for  F< 

Debit  with: 

(1)  — Amount  of  Federal  Income  Taxes  reserved 

in  excess  of  actual  amount  payable,  if  any. 

(2)  — All  moneys  disbursed  in  payment  of  Fed¬ 

eral  Income  Taxes. 

Balance — Represents  the  amount  of  Feder 

jderal  Income  Taxes 

Credit  with: 

(1)  — The  estimated  amount  of  Federal  Income 

Taxes  accrued  at  the  close  of  each  account¬ 
ing  period. 

(2)  — Amount  of  Federal  Income  Taxes  payable 

in  excess  of  actual  amount  reserved  for, 
if  any. 

al  Income  Taxes  payable. 

Reserve  for 

Debit  with: 

(1) — All  losses  sustained  on  account  of  con¬ 
tingencies  not  otherwise  provided  for. 

Balance — Represents  the  available  reserve 

Contingencies 

Credit  with: 

(1) — An  estimated  amount  to  cover  contingent 
losses. 

for  contingencies. 

Preferred  Capital 

Debit  with: 

(1) — Par  value  of  preferred  shares  retired. 

Balance — Represents  the  par  value  of  sin 

Stock-Authorized 

Credit  with: 

(1) — Par  value  of  preferred  shares  authorized. 

ares  authorized. 

Preferred  Capital 

Debit  with: 

(1) — Par  value  of  preferred  shares  authorized. 

Balance — Represents  the  par  value  of  shares 

Stock — Unissued 

Credit  with: 

(1) — Par  value  of  preferred  shares  issued. 

3  unissued. 

Debit  with: 

(1) — Par  value  of  common  shares  retired. 


Common  Capital  Stock — Authorized 

Credit  with  : 

(1) — Par  value  of  common  shares  authorized. 


Balance — Represents  the  par  value  of  shares  authorized. 


Debit  with: 

(1) — Par  value  of  common  shares  authorized. 


Common  Capital  Stock — Unissued 

Credit  with: 


(1) — Par  value  of  common  shares  issued. 


Balance — Represents  the  par  value  of  shares  unissued. 


Surplus 


Debit  with: 

(1)  — Dividends  declared  by  the  board  of  direc¬ 

tors. 

(2)  — Net  loss  as  shown  by  profit  and  loss 

account,  after  closing  entries  for  the 
period  have  been  made. 


Credit  with: 

(1)  — Amount  of  paid-in  surplus. 

(2)  — Appreciation  of  permanent  assets. 

(3)  — Net  profit  as  shown  by  the  profit  and  loss 

account,  after  closing  entries  for  the  period 
have  been  made. 


Balance — Represents  the  accumulated  net  profits  to  and  including  the  last  closing  period, 
less  any  dividends  paid. 


46 


BALANCE  SHEET  ACCOUNTS 


Undivided  Profits 


Debit  with: 

(1)  — Extraordinary  items  of  expenses  and 

extraneous  losses. 

(2)  — Balance  of  all  expense  accounts,  and  ac¬ 

counts  showing  losses,  at  each  closing 
period. 


Credit  with: 

(1)  — Items  of  extraordinary  income  and  extra¬ 

neous  profits. 

(2)  — Balance  of  all  accounts  showing  income  or 

profits,  at  each  closing  period. 


Balance — Represents  the  net  profit  or  loss  for  the  period. 


Investment 
(Or  Capital  Accounts) 


Debit  with: 

(1)  — Withdrawals  by  partners,  or  sole  pro¬ 

prietor. 

(2)  — Extraordinary  items  of  expenses  or  extra¬ 

neous  losses. 

(3)  — Expenses  in  connection  with  outside  in¬ 

vestments. 

(4)  — Net  loss  as  shown  by  profit  and  loss 

account,  after  closing  entries  for  the 
period  have  been  made. 

Balance — Represents  the  net  investment, 


Credit  with: 

( 1 )  — In^stment. 

(2)  — Items  of  extraordinary  income  or  extra¬ 

neous  profits. 

(3)  — Interest  allowed  on  investment. 

(4)  — Net  income  from  outside  investments. 

(5)  — Salaries  of  partners,  or  sole  proprietor,  if 

a  personal  account  is  not  kept. 

(6)  — Net  profit  as  shown  by  profit  and  loss 

account,  after  closing  entries  for  the 
period  have  been  made. 

capital,  of  each  partner  or  sole  proprietor. 


Profit  and  Loss — Current  Account 


Debit  with: 

(1) — Balance  of  all  expense  accounts,  and  ac¬ 
counts  showing  losses,  at  each  closing 
period. 

Balance — Represents  the  net  operating  profit 


Credit  with: 

(1) — Balance  of  all  accounts  showing  income  or 
profits,  at  each  closing  period. 

loss  for  the  period. 


PART  V 

OPERATING  ACCOUNTS 

BOOKKEEPING  PROCEDURE 


The  book  entries  are  a  very  important  factor  in  obtaining  the  desired  results,  and  in  this  connection 
Chart  number  twenty-one,  Volume  II,  and  the  following  text  will  be  of  material  assistance. 


INCOME 


(See  also  descriptive  text  accompanying  items  2-7  inclusive  of  Operating  Statement. 


Separate  accounts  should  be  maintained  for  leased  sections). 


Cash 

Sales 

Debit  with: 

(1)  — Balance  of  account  “Returns  and  Allow¬ 

ances  on  Cash  Sales.” 

(2)  — Balance  transferred  to  Profit  ,and  Loss—’ 

Current  Period. 

Credit  with: 

(1)  — Gross  Cash  Sales  of  merchandise. 

(2)  — Gross  Cash  Sales  of  restaurant. 

(3)  — Gross  Cash  Sales  of  personal  service  de¬ 

partments. 

(4)  — Gross  Cash  Sales  of  alteration  rooms. 

Returns  and  Allowances 

(Cash  Sales) 

Debit  with: 

(1)  — Amounts  refunded  cash  customers  for 

merchandise  returned. 

(2)  — Amounts  allowed  cash  customers  on  mer¬ 

chandise  not  returned. 

Credit  with: 

(1) — Balance  transferred  to  Cash  Sales. 

Charge  Sales 

Debit  with: 

(1)  — Balance  of  account  “Returns  and  Allow¬ 

ances  on  Charge  Sales.” 

(2)  — Balance  transferred  to  Profit  and  Loss — 

Current  Period. 

Credit  with: 

(1)  — Gross  Charge  Sales  of  merchandise. 

(2)  — Gross  Charge  Sales  of  restaurant. 

(3)  — Gross  Charge  Sales  of  personal  service 

departments. 

(4)  — Gross  Charge  Sales  of  alteration  rooms. 

Returns  and  Allowances 

(Charge  Sales) 

Debit  with: 

(1)  — Amounts  credited  charge  customers  for 

merchandise  returned. 

(2)  — Amounts  allowed  charge  customers  on 

merchandise  not  returned. 

Credit  with: 

(1) — Balance  transferred  to  Charge  Sales. 

C.  O.  D.  and  Will  Call 
Or  Layaway  Sales 


Debit  with: 

(1)  — Balance  of  account  “Returns  and  Allow¬ 

ances  on  C.  0.  D.  and  Will  Call  Sales.” 

(2)  — Balance  transferred  to  Profit  and  Loss — 

Current  Period. 


Credit  with  : 

(1)  — Gross  C.”0.  D.  or  Will  Call  Sales  of  mer¬ 

chandise. 

(2)  — Gross  C.  0.  D.  or  Will  Call  Sales  of  altera¬ 

tion  rooms. 


47 


48 


OPERATING  ACCOUNTS 


Returns  and  Allowances 

(C.  0.  D.  and  Will  Call  or  Layaway  Sales) 


Debit  with: 

(1)  — Amounts  refunded  C.  O.  D.  and  WILL 

CALL  customers  for  merchandise 
returned  or  credited  them  for  merchandise 
not  accepted. 

(2)  — Amounts  allowed  C.  0.  D.  and  WILL 

CALL  customers  on  merchandise  not 
returned. 


Credit  with: 

(1) — Balance  transferred  to  C.  O.  D.  and  WILL 
CALL  Sales. 


COST  OF  SALES 


(See  also  descriptive  text  accompanying  items  8-26  inclusive  of  Operating  Statement). 


Net  Cost  of  Merchandise  Sold 


Debit  with: 

(1) — Gross  cost  of  merchandise  sold. 


Credit  with: 

(1) — Balance  transferred  to  Profit  and  Loss — 
Current  Period. 


Discount  Earned  on 

Debit  with: 

(1)  — Amount  transferred  to  special  reserve 

account  representing  discount  on  inven¬ 
tory  at  end  of  period. 

(2)  — Balance  transferred  to  Profit  and  Loss — 

Current  Period. 


Merchandise  Purchases 

Credit  with  : 

(1)  — Amount  transferred  from  special  reserve 

account  representing  discount  on  inven¬ 
tory  at  beginning  of  period. 

(2)  — Discounts  earned  on  merchandise  pur¬ 

chases  during  period. 


Debit  with: 

(1)  — Cost  of  materials  used. 

(2)  — Wages. 

(3)  — Other  Expenses. 


Alteration  Costs 

Credit  with: 

(1) — Balance  transferred  to  Profit  and  Loss — 
Current  Period. 


Merchandise  Costs — Leased  Departments 


Debit  with: 

(1) — Cost  of  Leased  Section  Sales. 


Credit  with: 

(1) — Balance  transferred  to  Profit  and  Loss — 
Current  Period. 


EXPENSES 


(See  also  descriptive  text  accompanying  items  21-23  inclusive  of  Operating  Statement,  and  Classification  and  Distribution  of  Expenses. 


BOOKKEEPING  PROCEDURE 


49 


Operating  Expenses 

Debit  with:  Credit  with: 

(1) — All  operating  expenses.  (1) — Amounts  charged  customers  or  others  for 

expense  incurred  such  as  transportation 
charges  to  distant  points. 

(2)  — Transfers  to  Manufacturing  Workroom, 

Alteration  Rooms  and  Leased  Sections. 

(3)  — Balance  transferred  to  Profit  and  Loss — 

Current  Period. 


OTHER  INCOME  AND  LOSSES 

(Accounts  appropriate  to  any  extraordinary  operations  of  the  business  should  be  set  up  and  closed  out  at  the  end  of  the  period  to  Profit  and  Loss — 
Current  Period).  (See  also  descriptive  text  accompanying  items  29-31  inclusive  of  Operating  Statement). 


PART  V 

CLASSIFICATION  AND  DISTRIBUTION  OF  EXPENSE 

BOOKKEEPING  PROCEDURE 


In  a  small  business,  where  detail  is  not  desired,  the  expense  accounts  mlty  be  kept  in  the  general  ledger 
according  to  the  Fourteen  (14)  Natural  Divisions  and  closed  to  profit  and  loss  at  the  end  of  the  accounting 
period. 

The  larger  business  requires  more  detail  and  it  is  desirable,  when  the  business  is  departmentized  and 
expenses  kept  by  the  Fourteen  Natural  Divisions,  grouped  under  the  Five  Functional  Group  Classifications, 
to  maintain  a  subsidiary  expense  record,  which  balances  with  a  single  controlling  account  in  the  general 
or  private  ledger. 

This  subsidiary  record  should  be  divided  so  that  the  direct  expenses  can  be  charged  direct  to  the  selling 
departments  and  the  indirect  expenses  to  the  service  departments,  but  keeping  the  Five  Functional  Group 
Classifications  intact.  In  posting  items  of  Expense,  the  specific  accounts  in  the  subsidiary  record  should 
be  debited  with  the  separate  items  as  they  occur,  and  the  totals  of  expense  should  be  posted  at  periodic 
intervals,  preferably  monthly,  to  the  controlling  account  in  the  general  ledger.  Chart  number  twenty-two, 
in  Volume  II,  has  been  prepared  so  as  to  portray  the  source  of  information  for  expense  distribution. 

Expense  accounts  should  be  credited  only  with  recoveries,  made  through  the  disposal  of  items  pre¬ 
viously  charged  to  expense  accounts.  Receipts  from  salvage  of  items  not  charged  to  expense  should  not 
be  credited  to  expense  accounts. 


If  any  of  the  service  departments  do  work  for  other  service  departments,  such  as  care  of  collectors' 
machines  by  the  garage  and  automobile  department,  the  latter  should  be  credited  through  a  Transfer 
Account  (this  account  has  not  been  provided  in  the  Chart  of  Expense  Accounts),  and  the  account  under 
credit  offices  charged.  This  transfer  account  should  be  only  used  for  credits  which  consist  of  a  consolidation 
of  expenses  covered  by  the  charge,  such  as  the  one  referred  to  above.  Transfer  of  supplies  or  individual 
items  should  be  credited  to  the  account  to  which  they  were  charged. 

Alteration  and  Manufacturing  expenses  should  be  charged  to  their  respective  departments  in  a  sepa¬ 
rate  group  under  direct  expenses.  This  group  has  been  designated  by  the  letter  “W”,  so  they  can  be  seg¬ 
regated,  being  a  charge  to  cost  of  sales  and  inventory,  respectively. 

At  the  end  of  the  accounting  period,  the  total  of  the  expense  account  in  the  general  ledger  is  transferred 
to  Profit  and  Loss,  thus  automatically  closing  all  the  accounts  in  the  subsidiary  expense  record. 


50 


INDEX 


Pages 

Accounts  Payable . 9,  11  43 

Accounts  Receivable . 7,  10,  34 

Accrued  Accounts .  9 

Accrued  Expenses .  9,  44 

Accrued  Interest . 7,  8,  9,  33,  36,  37,  44 

Accrued  Liabilities . 11 

Administrative  Expenses .  25 

Advances  on  Merchandise  Purchases .  7,  35 

Advertising  Expense .  23 

Allowances — Sales . 13,  18,  47,  48 

Alteration  Costs . 16,  48 

Alteration  Departments . 26,  30,  31 

Amortization  Reserves . 8,39 

Assets . 10,33 

Average  Inventory .  18 

Bad  Accounts  or  Debts . 7,  8,  34,  35 

Balance  Sheet  Accounts . 7,  33 

Balance  Sheet  Forms  (Charts  1,  2  and  3,  Vol.  II) 

JBonds . 8,  9,  44 

Bookkeeping  Procedure . 33,  47,  50 

Bookkeeping  Procedure  (Charts  21  and  22,  Vol.  II) 

Buildings . .8,  38,  39 

Buying  Expenses .  25 

Capital  or  Investment  Accounts .  11 

Capital  Stock . 9,  11,  45 

Cartage .  13 

Cash .  7,  10 

Cash  on  Deposit .  7,  33 

Cash  on  Hand . 7,33 

Cash  Sales .  47 

Cash  Surrender  Value  of  Life  Insurance  Policies .  8,  37 

Cashiers’  Funds .  7,  33 

Charge  Accounts . * .  7,  34 

Charge  Sales .  47 

Charts  of  Expense  Accounts — Purposes  of  each .  27 

Classification  and  Distribution  of  Expense . 22,  50 

Classification  of  Merchandise . . . .  32 

Classification  of  Merchandise  (Chart  20,  Vol.  II) 

Common  Capital  Stock . 9,  11,  45 

Common  Carrier  Claims .  8,  37 

Communication  Expense .  24 

Contents .  3 

C.  O.  D.  Accounts. , . 7,  34,  47 

Cost  of  Merchandise  Sold .  16 

Cost  of  Sales . . . 13,  15,  16,  48 

Current  Assets .  10 

Current  Liabilities .  11 

Customs  and  Usages — Operating  Accounts .  21 

Customers’  and  Employees’  Discounts .  18 


Pages 

Deferred  Charges .  8,10 

Definitions .  18 

Delivery  Equipment .  8,  41 

Delivery  Expense .  25 

Depreciation  Expense .  24 

Depreciation  Reserves . 7,  8,  9,  11,  34,  35,  39,  40,  41,  45 

.Discount  Earned . 15,  17,  48 

Distribution  and  Proration  of  Expenses .  26 

Dividends .  17 


Expenses . 16,  22,  26,  49,  50 

Expense  Account  Index  (Charts  16  and  17,  Vol.  II) 

Expense  Accrued .  9,  44 

Expense  Classification  and  Distribution  (Charts  8  to  19, 
inclusive,  Vol.  II) 

Expense  Statement  Forms  (Chart  7,  Vol.  II) 

Express,  Freight  and  Cartage .  13 


Factors  of  Expense .  22 

Federal  Sales  Taxes  .  9,  43 

Freight,  Express  and  Cartage . 13 

Functional  Group  Classification  of  Expense . .  22,  25 

Funded  Indebtedness. . . .- . 9,  11,  44 

Gift  Certificates . . .  9,  43 

Good  Will,  Patents  and  Trademarks . 8,  10,  41 

Gross  Sales .  12 

Group  Classification  of  Expense — Functional . 22,  25 


Income . 12,  47 

Income  and  Expense  Statement  Forms  (Charts  4,  5  and 
6,  Vol.  II) 

Income  Taxes — Federal  or  State . 9,  11,  17,  45 

Improvements  to  Leased  Buildings .  8,  39 

Installment  Accounts .  7,35 

Insurance  Deposits .  8,  37 

Insurance  Expense . i .  24 

Interest  Accrued . .  .7,  8,  9,  33,  36,  37,  44 

Interest  Charged  to  Departments . 17,  23 

Interest  Earned . 17 

Interest  Expense .  23 

Interest  Prepaid .  8,  38 

Introduction .  5 

Inventories . .  .7,  10,  13,  14,  18,  19,  20,  35 

Investment  or  Capital  Accounts .  9,  46 

Land  and  Buildings . 8,  38,  39 

Layaway  Accounts . 7,  34,  47 

Leased  Sections  or  Departments . . . 9,  12,  13,  43 

Leasehold . 8,  39 

Liabilities . 9,  11,  42 

Light,  Heat  and  Power . 25 


INDEX — Continued 


Pages 

Machinery  and  Equipment .  8,  40 

Manufacturing  Departments . 26,  30,  31 

Manufacturing  Inventory .  35 

Merchandise  Classification .  32 

Merchandise  Cost . 15,  16,  48 

Merchandise  Inventory . 7,  10.  13,  14,  19,  20,  35 

Merchandise  Paid  for  in  Advance .  7 

Merchandise  Purchases . 9,  13,  14,  43 

Mortgages .  9,  44 

Natural  Divisions  of  Expense .  22 

Net  Operating  Profit  or  Loss .  16 

Net  Profit  or  Loss . 17 

Net  Sales.... .  J3 

Nominal  Accounts .  9  n 

Notes  Receivable . 7,  8,  10,  33,  37 

Notes  Payable . 9,  11,  42 

Numbering  System  of  Expense  Accounts .  26 


Occupancy  Expenses .  25 

Office  Furniture  and  Equipment .  8,  40 

Operating  Accounts . 18,  21,  47 

Operating  Expenses . 16,  49 

Operating  Statement .  12 

Operating  Statement  Forms  (Charts  4,  5  and  6,  Vol.  II) 

Organization  Expenses .  g  39 

Other  Assets .  g  jq 

Other  Income .  16  jy  ^g 

Other  Losses .  16  jy 

Owned  Sections  or  Departments .  12 


Pages 

Real  Estate  Owned . 8,  38,  39 

Rent  Accrued .  9,  44 

Rent  Paid .  17 

Rental  Charged  to  Departments .  17 

Rental  Profit .  17 

Rentals  Expense .  23 

Rentals — Floor  Space .  28 

Rentals — Window .  29 

Repairs  Expense . 24 

Retail  Inventory  Method . 19,  20 

Returns  and  Allowances . 13,  18,  47,  48 

Reserves — Amortization .  8,  39 

Reserves — Contingencies . 9,  11,  45 

Reserves — Depreciation . 8,  39,  40,  41 

Reserves — Income  Tax . 9,  11,  45 

Reserves — Possible  Losses — Notes  and  Accounts . 7,  8,  34,  35 

Salaries  and  Wages  Expense .  23 

Sale  of  Boxes,  Waste,  Etc .  17 

Sales . 12,  18 

Securities  Owned .  8,  10 

Selling  Expenses .  25 

Service  Purchased  Expense .  24 

Stock  Turnover .  18 

Stocks  Owned  (Securities) .  8,  37 

»  - 

Store  Furniture  and  Fixtures .  8,  40 

Supplies  Expense .  24 

Supply  Inventory .  8,  38 

Surplus . 9,  11,  45 


Payroll  Accrued . 

Permanent  Assets . 

Personal  Accounts . 

Preferred  Capital  Stock . 

Prepaid  Expenses . 

Prepaid  Interest . 

Professional  Services  Expense . 

Profit  and  Loss — Current . 

Profit  and  Loss — Net . 

Profit  and  Loss — Operating — Net . 

Profit  and  Loss — Surplus . 

Proprietary  Interests . 

Publication . 

Publicity  Expenses . 

Purchases . 

Purposes  of  each  Chart  of  Expense  Accounts 


. ...  9,44 
. . . .  8,  10 
8,  9,  38,  43 


...9,  11,45 

.  8,38 

.  8,38 

.  24 

9,  11,  17,  46 

.  17 

.  16 

...9,  11,45 

.  9 

.  6 

.  25 

9,  13,  14,  43 
.  27 


Taxes  Accrued .  44 

Taxes  Expense .  23 

Traveling  Expense . 24 

Telephone  Rental  (Income) .  17 

Trade  Acceptances .  9,  42 

Treasury  Stock . ; .  11 

Unexpired  Insurance  Premiums .  8,  38 

Undivided  Profits .  9,46 

Unclassified  Expense . 24 

United  States  Securities . 8,  10,  36 

Unredeemed  Cash  Refunds .  9,43 

War  Savings  Stamps .  8,  36 

Will  Call  Accounts . 7,  34,  47 


/ 


